Market Insights

Apple and Tesla have been two of the best performing large stocks for years. But now they may be falling behind two major rivals: Microsoft and Toyota Motor.

The charts below demonstrate how AAPL and TSLA remain trapped under recent highs, while MSFT and TM have broken out. AAPL and TSLA are also below their 50-day moving averages, unlike MSFT and TM. That may reflect demand for one pair of stocks and less interest in the other.

And more than technical chart patterns may be at work. The latest quarterly results suggest their fundamentals could also be going in different directions. Is the divergence a short-term blip, or is a longer-term change of leadership taking place? Does the price action reveal something more important with their underlying businesses?

Microsoft vs Apple

MSFT and AAPL have been rivals for decades. TradeStation data shows MSFT outperforming in the in the 1990s and losing its edge around 2003. This matches an era of PC dominance in the 1990s, followed by the rise of iPods and iPhones in the 2000s. They were evenly matched since about 2015, but MSFT has led more consistently since last March. This time, artificial intelligence (AI) seems to the big reason.

MSFT’s link to OpenAI made it a leader in the field, but the main growth has occurred on its Azure cloud-computing division. MSFT has also introduced Copilot as an add-on to existing Office programs. AAPL, on the other hand, has made no major AI announcements. It’s struggled with a slow iPhone upgrade cycle and increased competition in China.

Toyota vs Tesla

TM and TSLA aren’t rivals historically, but that may be changing. TSLA outperformed its Japanese rival (and almost every other large stock) starting in October 2019, when key manufacturing improvements let Elon Musk scale production and manage costs. While the efficiencies have continued, end-markets have changed. Demand for electric vehicles is slowing as competition increases. Meanwhile, TM is benefitting from its leadership in hybrid vehicles.

The Prius maker reported better-than-expected earnings and sales on Tuesday. It raised its profit forecast, sending its shares to a new all-time high. That contrasts with TSLA, which is at eight-month lows after warning of slower growth.

In conclusion, price action in the stock market often reflects bigger fundamental trends. AAPL and TSLA have lagged in the last 6-12 months, and remain below all-time highs despite the S&P 500 hitting new records last week. Their earnings may show longer-term slowing in their core businesses. MSFT and TM, on the other hand, have broken out amid potential signs of longer-term improvements in their core businesses.