After peaking on Dec. 16, the Nasdaq Composite -- which tracks almost every stock trading on the Nasdaq stock exchange -- has entered into a correction. The index is down around 9% year to date and 13% from its December peak.
Considering the Nasdaq Composite is tech-heavy, it's no surprise that many big-name tech stocks have followed a similar path this year. The "Magnificent Seven," a name given to Apple (AAPL +1.00%), Microsoft (MSFT 1.15%), Nvidia (NVDA +0.19%), Amazon (AMZN 0.91%), Meta Platforms (META 2.61%), Alphabet (GOOG 1.19%)(GOOGL 1.26%), and Tesla (TSLA 2.03%), are all down year to date, except Meta.
I don't see a drop in the Magnificent Seven stocks as a time to hit the panic button. They've each experienced similar slumps before, and with enough time, they'll likely experience them again at some point. If anything, I view this as a time when investors can consider going "discount" shopping and begin buying shares on the dip.
I see the appeal in almost every Magnificent Seven and would consider buying the dip on each. The one exception, however, is Tesla stock, which I personally would stay far from right now.
There's an encouraging future with most Magnificent Seven stocks
For the remaining six stocks in the Magnificent Seven, there are growth drivers and competitive advantages in their businesses that make buying the dip appealing:
- Apple is one of the most profitable companies in the world and has a growing services segment that's expanding rapidly beyond just the iPhone and other hardware.
- Microsoft has a wide tech ecosystem that is essential to enterprise and corporate life as we know it, and a strategic partnership with OpenAI gives it a leg up in AI innovation.
- Nvidia's graphics processing units (GPUs) and other data center hardware are vital to developing the AI infrastructure that will be developing for the foreseeable future.
- Amazon has progressed beyond e-commerce to become the leader in cloud computing and has an emerging advertising business.
- Meta is a digital advertising giant and has been investing heavily in its AI infrastructure to bolster its business and bring its metaverse vision to life.
- Alphabet's Google continues to dominate search, its cloud business continues to pick up steam, and YouTube remains the leader in digital video content and an emerging streaming force.
Of course, these are simplified business analyses, but I'm more optimistic about each of their trajectories than Tesla's.
International competition is weighing on Tesla's sales
Passenger electric vehicles (EVs) account for most of Tesla's revenue, and a lot of those sales come internationally. Unfortunately, Tesla sales abroad have taken a hit recently. The China, Norway, Denmark, Sweden, and Germany markets all experienced sales drops in recent months.
Not only is the EV market becoming more competitive with international companies releasing their own EVs (such as BYD in China and Volkswagen in Germany), but many of them are also cheaper. With comparable performance in most cases, it's unsurprising that customers are leaning toward the cheaper option.
Tesla's automotive revenue in the fourth quarter of 2024 was around $19.8 billion (down 8% year over year), while its total revenue increased 2% year over year to $25.7 billion. Investors surely expected more from Tesla's revenue, but the 23% drop in its operating income was more alarming, continuing its discouraging path over the past few years.
TSLA Revenue (Quarterly) data by YCharts.
It's (very) hard to justify Tesla's current valuation
Even after falling by over 42% this year, Tesla remains extremely expensive by most standards. Looking at its price-to-earnings (P/E) ratio, it's definitely the most expensive stock out of the Magnificent Seven -- and it's not even close.
TSLA PE Ratio (Annual) data by YCharts.
It would be hard to justify investing in Tesla while it's this expensive and its earnings growth has stalled. The other Magnificent Seven stocks seem to have much more earnings growth in front of them, and there are fewer questions surrounding their businesses' futures.
When you're investing in Tesla, you're investing in a vision (which isn't inherently bad), but you should proceed with caution when there are so many question marks and the stock is so expensive.
