Apple Stock vs. Tesla Stock: Billionaires Are Buying One and Selling the Other Ahead of 2025

Apple (AAPL 0.60%) and Tesla (TSLA -1.57%) are two of the largest and most popular stocks among retail and institutional investors. But a few billionaire-led hedge funds sold Apple and bought Tesla during the third quarter. Here are the details.

• Israel Englander of Millennium Management sold 11.5 million shares of Apple, reducing his stake by 90%. Apple had been one of his 10 largest holdings, but it no longer ranks in the top 50. Meanwhile, Englander bought 225,760 shares of Tesla, increasing his position by 51%.
• Louis Bacon of Moore Capital Management sold 431,000 shares of Apple, exiting his position entirely. Apple had been one of his 10 largest holdings. Meanwhile, Bacon bought 25,000 shares of Tesla, which now ranks among his top 25 holdings.
• Dan Loeb of Third Point sold 1 million shares of Apple, reducing his take by 52%. Apple had been the seventh-largest position in the portfolio, but it no longer ranks among the top 10. Meanwhile, Loeb bought 400,000 shares of Tesla, opening a new position

The trades above are detailed in the latest Forms 13F completed by each hedge fund. While those forms were filed recently, the trades took place at least two months ago. So, here is a more up-to-date look at Apple and Tesla.

1. Apple

Apple has cultivated brand authority and pricing power by developing a ecosystem of tightly integrated hardware, software, and services. The company has a strong presence in consumer electronics categories like smartphones and personal computers, as well as adjacent markets like financial services, streaming media, and mobile app distribution and advertising.

However, Apple is beset by headwinds. For instance, vertical integration of hardware and services has traditionally been a competitive advantage for the company. But the Digital Markets Act (DMA) in Europe has weakened that advantage by forcing Apple to permit third-party app stores on its devices, and to allow alternative in-app payment methods. Similar legislation has been introduced in the U.S., which could be problematic for Apple if implemented.

Additionally, Apple's services business is driven in large part by Alphabet. Apple receives up to $20 billion annually for making Google the default search engine on its devices, but that revenue could disappear. Federal Judge Amit Mehta recently ruled that Alphabet had an illegal monopoly in internet search. The appeals process may last years, but Alphabet's ability to pay for default search placement will likely be limited, if not completely prohibited.

Finally, some analysts have framed the introduction of Apple Intelligence -- a suite of artificial intelligence features for its devices -- as the catalyst for an iPhone upgrade cycle of epic proportions. However, those expectations not only seem overbaked, but also have been priced into the stock several times over.

Indeed, Wall Street estimates Apple's earnings will increase at 10% annually over the next three years. That consensus makes the current valuation of 41 times earnings look too expensive. Prospective investors should avoid this stock, and current shareholders should consider trimming large positions.

2. Tesla

Tesla is the market leader in battery electric vehicles, both globally and within the U.S. Admittedly, it lost share in both geographies over the past year, but that trend could reverse in 2025 when the company adds a more affordable vehicle to its lineup. Beyond the core electric vehicle business, Tesla has important catalysts on the horizon in autonomous driving and robotics.

The company plans to release an unsupervised version of its full self-driving (FSD) software in California and Texas in 2025. Tesla also intends to open a ride-hailing service to the public in those states, entering what promises to be a multitrillion dollar market in time. CEO Elon Musk has estimated that FSD software and robotaxi services could push gross margin above 70%, a stark contrast to 20% in the recent quarter.

John Murphy at Bank of America recently visited Tesla's manufacturing facility in Austin, Texas, and was impressed by the latest version of FSD. He told CNBC the technology was "incredibly good through some very challenging scenarios." He also said recurring revenue from FSD could exceed the initial vehicle sales price, and consequently bumped his forecast to $400 per share.

Tesla also has an opportunity to disrupt the $50 trillion global labor market with Optimus, an autonomous humanoid robot. To readers that find that far-fetched, Bill Gates once said, "We always overestimate the change that will occur in the next two years, and underestimate the change that will occur in the next ten." Humanoid robots are an inevitable extension of artificial intelligence and Tesla is an early leader.

Here's the big picture: Tesla has gradually lost share in battery electric vehicles, but that may change when the company adds a more affordable model to its lineup next year. Either way, Tesla has larger and more important opportunities in autonomous driving and robotics. But those nascent products are a nightmare where valuation is concerned because they are not yet a meaningful source of revenue.

Personally, I believe Tesla can realize its vision surrounding FSD and Optimus, but my conviction is two parts speculation for every one part fact. However, I think investors that share my confidence -- anyone that believes Tesla can scale an autonomous ride-hailing business by decade-end -- should have exposure to the stock. And Dan Ives at Wedbush recently told CNBC Tesla is the "most undervalued AI name in the market."