Tesla Stock & Apple Stock Dominate 2020
It’s all the rage these days: major tech stocks splitting. Tesla Inc (NASDAQ:TSLA) was the first to announce that it was going to undertake a major 5-1 stock split. Apple Inc (NASDAQ:AAPL) wasn’t far behind, however, announcing its own 4-1 stock split on Monday.
The Apple stock split and Tesla stock split are examples of a strategy that’s not hugely uncommon among tech stocks considering their massive growth. But these moves speak to larger potential within these companies for gains down the line.
Before we dive into TSLA stock and AAPL stock on an individual level, it helps to understand why the tech stock market is so frothy right now.
For decades, tech has been the dominant industry in nearly all categories: market cap, revenue, user base, profits, reach, etc. That market dominance has made many investors very rich over the years, with the tech behemoths growing at rates unrivaled by other industries.
In 2020, we saw perhaps the final solidification of tech stocks’ dominance on the markets. With COVID-19 coming in and wreaking havoc across nearly every industry, it was tech ultimately that emerged the fastest from the funk.
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It was tech also that saw the highest gains, far exceeding its losses in March as the first wave of COVID-19 panic assailed the market.
And finally, it is tech that is now carrying the stock market to all-time highs, even while huge swaths of the economy remain largely in shambles.
What this speaks to is a system in place that’s designed to favor tech stocks in such a way that broader market conditions have become largely irrelevant. That’s because tech in general has become so integral to our way of life and so far-reaching globally that we simply can’t imagine a life without smartphones, the Internet, social media, or the cloud, or any other of the other modern trappings we take for granted.
Furthermore, there is set to be a great many advancements in the near future regarding technology. AI, for instance, remains one of the most promising sectors that could easily balloon into a multi-trillion-dollar industry in the coming years. 5G is another exciting piece of tech that is set to release in the near future that could generate huge amounts of wealth, and therefore massive potential for profits for savvy investors.
At the end of the day, you can’t look at modern life and not see the huge effect that modern tech companies have had on the social, political, and economic landscapes. As such, these are the best stocks to invest in right now.
You simply won’t find anywhere else the potent combination of huge growth potential (after all, tech spreads in a domino-like fashion globally, allowing for multiple waves of gains) while also being foundationally solid, so much so, in fact, that they weather massive market shifts with aplomb. This creates the platonic ideal of a stock: one that has potential for growth while also mitigating volatility.
With all that said, it’s easy to see why Apple stock and Tesla stock are so favored by investors. They both exhibit the powerful combination described above.
A final note, however: between these two stocks: AAPL stock is definitely the more stable of the two, while TSLA stock has the higher upside. That’s evidenced in how the two companies have performed so far in 2020.
TSLA vs. AAPL
Chart courtesy of StockCharts.com
As can be seen above, Tesla stock has far outperformed Apple stock. But it’s not like AAPL has been a slouch; 70% returns year-to-date is something that no investor would be upset with.
But of course, with the near 400% gains year-to-date for Tesla stock (and over 800% over the past 12 months), I get why investors would be kicking themselves if they played it safe with Apple stock rather than swinging for the fences with Tesla stock.
And that’s precisely what happened: Apple stock is unlikely to undergo a major correction anytime soon, as its gains are based on recurring revenue and an already proven business model that has served to elevate the tech company to be one of the most dominant in the world.
Conversely, Tesla stock is trading on future potential. It’s looking to capitalize on the political and social will to combat climate change by offering a number of zero emission solutions to cars and houses in the near future. That move leaves it well-positioned to profit immensely from the economic shift set to take place towards green tech, meaning it could balloon in value for years to come.
On the flip side, investors are an easily excitable bunch, and the hype around Tesla is at a fever pitch right now. With gains like the company has experienced, it’s certainly more vulnerable than most to a sizable market correction at the first sign of bad news.
Now, this doesn’t mean that bad news will necessarily come, but if it does (in the form of a bad deal, missed delivery numbers, or weak financials) then you can anticipate seeing a pretty significant fall in the stock. That fall will likely then set up the company for even more gains on the recovery, but the risk for short-term volatility is there.
So, even among the top tech stocks there are varying degrees of potential for growth and vulnerability to volatility. With all that said, however, these are still among the top stocks in 2020.
Tesla Stock Split
On August 11, the company announced a five-for-one stock split. The changeover will take place after market close on August 28 and the first trading day with the new influx of TSLA stock will be August 31. (Source: “Tesla Announces a Five-for-One Stock Split,” Tesla Inc, August 11, 2020.)
This is big news for Tesla stock, especially as it careens ever upwards, with shares trading above $2,000 each.
To be fair, stock splits aren’t as powerful as they used to be. One of the reasons being the growing share of major institutions doing the bulk of trading.
As of February 2018, 84% of all American-owned stocks were held by the wealthiest 10%. (Source: “We All Have a Stake in the Stock Market, Right? Guess Again,” The New York Times, February 8, 2018.)
And while the Tesla stock split will lower the face value of each share, that isn’t as important as it used to be, due to the rise of fractional trading, a form of trading that allows investors to buy slices of stocks.
Still, there is a mental game being played here. And investors seeing their number of shares increase while the value of each share decreases on their face (which, in principle, would encourage more investors to buy in at that lower price) has done wonders for an already surging TSLA.
Chart courtesy of StockCharts.com
Following the announcement, share prices spiked for Tesla stock, with a huge 30% gain in about two weeks.
While that has likely peaked for now, what it does show us is that the Tesla Inc executives know what they’re doing. They’ve been able to steer the company towards ever higher gains in 2020, and I don’t see that slowing down anytime soon.
Apple Stock Split
Apple Inc, meanwhile, hasn’t seen as big of a bump from its announced stock split, but has just in general had a very strong August.
Chart courtesy of StockCharts.com
Wall Street analysts have been bullish on Apple stock for some time now, with many raising their pricing targets lately as the company continues to mark record highs. (Source: “Apple Stock Is Soaring Ahead of Its Stock Split. That’s Not Why Its Future is Bright.” Barron’s, August 25, 2020.)
As mentioned earlier, 5G is one of the more exciting new technologies set to hit the market soon. And Apple Inc is likely to be a beneficiary, as its next wave of iPhones will feature the upgraded mobile network technology. (Source: Ibid.)
That alone is enough to help raise sales, analysts predict, with the company’s overall projection trending upward.
Apple Inc did face some scrutiny when CEO Tim Cook had to face Congress over accusations of anti-competitive actions in regards to the share the company takes from app makers on every transaction that takes place on the Apple App Store.
Still, this controversy didn’t take flight, and the company has largely been able to remain out of the crosshairs of both government and consumers. This makes it unique among top tech stocks in that it doesn’t elicit frothing-mouthed hatred or scandal the way, say, Amazon.com Inc (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) inspire among a segment of people and politicians.
The 4-1 Apple stock split is going to take the company down to about the $100.00-a-share price, which I imagine will be very enticing to a good portion of investors.
Tech stocks are crushing it in 2020. Even with all the unpredictability that COVID-19 has wrought, these companies have navigated literally halted economies and hardly missed a beat. That is impressive, and speaks to a staying power that, frankly, we’ve probably never seen on the market before.
With that in mind, top tech stocks like Apple Inc and Tesla Inc will continue to see growth for many years to come, with both looking to iterate and innovate the ways in which they grow share prices.