Apple (AAPL -2.41%) shares have advanced 34% during the past year, but that upside has been driven almost entirely by valuation multiple expansion rather than earnings growth. Consequently, some Wall Street analysts have turned bearish on the stock in the last couple of weeks.

Tim Long at Barclays recently initiated coverage on Apple with a sell rating and a target of $184 per share. That forecast implies 24% downside from the current share price of $243.

Tesla (TSLA -0.05%) shares have advanced 66% over the past year, but not because of business fundaments. Instead, the upside has been driven by expectations the company will benefit from the ties between CEO Elon Musk and President-elect Donald Trump. Not surprisingly, some analysts are bearish.

Ryan Brinkman at J.P. Morgan recently reiterated his sell rating on Tesla, and kept his target price at $135 per share. That forecast implies 66% downside from its current share price of $395.

Here's what investors should know about Apple and Tesla.

Apple: The stock Barclays says could drop 24%

The investment thesis for Apple is twofold. First, the company is the market leader in smartphones in terms of revenue, and has a strong presence in several other consumer electronics markets. The loyalty its premium devices inspire should bring more consumers to its ecosystem, while also supporting higher prices. Indeed, the average iPhone sold for 3 times more than the average Samsung smartphone in the September-ending quarter.

Second, Apple has used its brand authority to build a thriving services business that enables it to more deeply monetize its installed base. The company has a strong presence in several relevant markets, including mobile applications, mobile payments, and digital advertising. Services earn higher margins than products, and the services segment is growing more quickly, which means Apple should become more profitable over time.

However, investors got too excited about the recent introduction of Apple Intelligence, a suite of artificial intelligence (AI) features that many analysts said would spur a massive iPhone upgrade cycle. That thesis has so far proven false. Craig Moffett at MoffettNathanson in a recent note to clients wrote, "Not only have we not seen any sign of an upgrade cycle, but we have seen growing evidence that consumers are unmoved by AI functionality."

Wall Street expects Apple's adjusted earnings to increase 9% in fiscal 2025, which ends in September. That consensus makes the current valuation of 35.9 times adjusted earnings look extremely (and unsustainably) expensive. Personally, I expect shares to trend lower unless Apple shocks analysts with earnings well above consensus. Shareholders with big positions should consider trimming.

Tesla: The stock J.P. Morgan says could drop 66%

The investment thesis for Tesla is twofold. First, while the company narrowly held its lead in electric car sales through November, it lost 3 percentage points of market share last year. But that trend could reverse following the launch of a sub-$30,000 vehicle (reportedly called the Model Q) in the first half of 2025. At the same time, Tesla's margins could expand as it continues to focus on manufacturing efficiency.

Second, Tesla has a more substantial opportunity in full self-driving (FSD) software and robotaxi services. The company reported a 1,000-fold improvement in FSD last year in terms of miles per critical intervention. So, Tesla plans to release an unsupervised version of FSD and open a ride-hailing service in Texas and California this year. Musk recently reminded analysts that "the future is autonomous."

Wall Street thinks Tesla's adjusted earnings will grow at 27% annually through 2025. That makes the current valuation of 164 times adjusted earnings look absurdly expensive. However, Dan Ives at Wedbush sees the situation differently. On Nov. 29, he told CNBC, "Today, I view Tesla as the most undervalued AI name in the market." The stock is up 14% since then, but Ives' bull-case target at $650 per share still implies 65% upside from the current share price of $395.

Ultimately, Tesla is a risky investment because much of its valuation is based on products that have yet to become material revenue streams, meaning FSD software and robotaxis. Investors who lack confidence in the autonomous driving narrative should avoid the stock. And shareholders in that category should exit their positions. In the absence of autonomous driving technology, Tesla shares are wildly overvalued.

Alternatively, investors who are confident that Tesla can disrupt transportation and mobility should consider buying a small position. And current shareholders in that category should continue holding the stock, provided they are comfortable with volatility. Tesla is richly valued and shares may decline sharply on any bad news. But if it becomes the autonomous driving powerhouse it aims to be, Tesla should be worth far more in the future.