The time for corporate earnings reports has arrived, and some of the world’s most prominent companies will be revealing their quarterly financial data soon. Two stocks I am particularly interested in during this period are Apple (AAPL) and Tesla (TSLA), which seem to be encountering obstacles. Tesla is experiencing a decline in its electric vehicle market share, while the growth of Apple’s flagship iPhone has slowed down as it matures across the globe.
Over the next couple of weeks, specifically July 23 for Tesla and July 31 for Apple, both companies are due to release their second-quarter financial results. Investors are keeping a close eye on these developments. Should either company be offloaded prior to the release of these reports?
Apple’s stagnant growth
The preeminence of Apple in the smartphone market is unquestionable, having pioneered this sector with the introduction of the iPhone in 2007. Today, the company rakes in approximately $200 billion annually from hardware sales of iPhones. However, growth in this area has slowed due to less frequent upgrades by customers, as yearly advancements in device technology have become minimal. This trend, evident since 2022 following the surge in spending during the COVID-19 pandemic, has led to a leveling off in Apple device sales.
In the long run, Apple may have to advance their computing hardware significantly to avoid falling behind technologically. For instance, they are currently lagging in the areas of augmented and virtual reality compared to Meta Platforms, which is successfully selling millions of its glasses-based hardware annually. Despite an initial attempt with the Vision Pro headset, it seems Apple’s foray into this market was unsuccessful and may have been discontinued.
Apple is facing a challenge with slow growth in sales. To significantly boost its revenue, which currently stands at $400 billion, it needs to launch large-scale, popular products. However, there seems to be no new product releases on the horizon and only minimal involvement in the competitive AI market, making it uncertain if Apple’s revenue will grow significantly faster than inflation over the next few years.
The current valuation of Apple’s stock presents an issue because its price-to-earnings ratio (P/E) stands at 33, which is usually associated with rapidly growing companies. If Apple doesn’t pick up growth again soon, it could face multiple contraction and a decreasing share price due to this high P/E ratio. Therefore, you might want to think about selling your Apple stock before the company releases its Q2 earnings report.
Tesla’s declining market share
From an outside perspective, if Apple investors find themselves concerned about stagnant growth, Tesla investors might be facing a more pressing issue: a downward trend in sales. In the latest quarter, Tesla’s automotive revenue plummeted by 20% compared to the same period last year, amounting to $14 billion. The profit situation is deteriorating and is even more worrying than the decline in revenue, given the unwinding of fixed leverage in the automotive manufacturing sector. Over the past year, operating income has dropped nearly 50% from its peak.
It seems that this quarter won’t be very fruitful for Tesla either. Their sales figures to customers have been steadily decreasing, with Q2 deliveries amounting to 384,000 units compared to 443,000 in the same period last year. The brand is finding it harder to maintain its position in the US, Europe, and China as more electric vehicle startups and established automakers intensify competition.
In the U.S., the tax incentives for electric cars are about to end, causing an increase in costs for consumers wanting to purchase a Tesla. This situation has necessitated Tesla to reduce its vehicle prices, negatively impacting their earnings.
Despite Tesla’s current significant struggles, its stock is trading at an exceptionally high Price-to-Earnings (P/E) ratio of 179. With a market capitalization of $1 trillion, it must increase its net income to approximately $40 billion or more to reach a relatively reasonable valuation. Over the past year, it has only managed earnings of $6.4 billion and briefly surpassed an annualized rate of over $10 billion. Given this, it appears rather improbable that Tesla will soon report annual profits of $40 billion.
At the current market prices, it’s possible to comprehend reasons supporting an investor’s decision to own Apple stock. However, I don’t see any solid basis for persisting in buying Tesla shares, given the potential risks they pose to your portfolio. It would be wise to consider offloading your holdings before the upcoming Q2 earnings report to minimize exposure.
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2025-07-21 19:22