The stock market has been off to a shaky start to 2026. The S&P 500 is up less than 1% entering trading Tuesday, but for much of the year it’s been in negative territory. Many top growth stocks have been performing even worse, as investors have moved away from high-priced stocks that may be vulnerable to declines.
Even the illustrious “Magnificent Seven” stocks haven’t been raging buys this year. The two worst-performing stocks in that group at this stage of the year are Microsoft(NASDAQ: MSFT) and Tesla(NASDAQ: TSLA). They’re both down more than 20% thus far, and are facing very different challenges. Which of these stocks is the better buy right now?
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Microsoft’s stock is off to one of its worst starts in years. I’m not surprised there has been a bit of a correction simply because the tech stock was highly valued entering the year and trading at a sizable premium. But for it to be one of the worst performers in the Magnificent Seven is definitely a little surprising.
The business itself remains solid, with Microsoft generating 17% revenue growth in its most recent quarter (which ended on Jan. 28). The company has been investing in artificial intelligence (AI), and CEO Satya Nadella says that the company’s AI business is already “larger than some of our biggest franchises.” Investors may simply have been investing a bit more in growth if that were the case, particularly in its cloud business, Azure, which has been experiencing a slowdown in growth. Even though it hasn’t been a massive slowdown for Azure, the problem with a stock that’s trading at a high valuation is that expectations can be high and difficult to meet.
However, with strong fundamentals and promising opportunities related to AI, Microsoft’s stock remains one of the best blue chip stocks to own. And right now, with the stock trading at 24 times its trailing earnings, which is in line with the average S&P 500 stock, it could be a great time to load up on a potential long-term bargain.
Shares of electric vehicle (EV) maker Tesla have been in a tailspin this year as uncertainty about its long-term growth has weighed on its valuation. Competition has been ramping up and squeezing its margins, resulting in some disappointing numbers. Last year, Tesla’s net income was $3.8 billion — down from $7.1 billion a year earlier.
However, with the company in the early innings of rolling out robotaxis and planning to build and sell robots to customers, potentially as soon as next year, Tesla’s growth prospects are promising. If it’s able to deliver on its ambitious targets, the EV stock could easily soar in value. Many investors and analysts also believe that it’s only a matter of time before Elon Musk merges Tesla with the soon-to-be public SpaceX, which may unlock even more value in the future.
For long-term investors who can look past Tesla’s current EV struggles, there are many reasons to consider buying the stock right now, even though its valuation may appear egregious — it trades at more than 300 times its trailing earnings.
The stock that’s more likely of the two to bounce back this year looks to be Microsoft. Its growth rate may be underwhelming to some growth investors, but with an extremely attractive valuation, it may only be a matter of time before value investors realize the deal they’re getting with the blue chip stock. Meanwhile, a SpaceX IPO might overshadow Tesla this year and prompt more investors to pull money out of the EV stock and into the next big growth opportunity.
However, for investors who can stomach the volatility and uncertainty, Tesla may be the better buy over the long term, but that’s only if it can execute on its lofty goals. They are ambitious, and if you’re a believer in Musk and are willing to be patient, then Tesla could indeed generate returns greater than Microsoft in the longer term, but it’s by no means a guarantee.
Overall, go with Microsoft if you’re looking for more of a sure thing, but Tesla can be suitable if you’re willing to wait and believe in Musk’s vision for the company.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Tesla. The Motley Fool has a disclosure policy.
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