We recently published a list of 7 Best AI Value Stocks That are ‘Money Machines’ According to NYU’s Aswath Damodaran. Since Tesla Inc (NASDAQ:TSLA) ranks 7th on the list, it deserves a deeper look.
Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University. His thoughts on economy and stock valuations are given a lot of weight by analysts. Damodaran in his recent interview with CNBC said that Magnificent Seven stocks have become the “value stocks for investors who care about earnings and cash flows.”
“We look at the last year and a half, they’ve added $8.8 trillion in market cap… just these seven companies. Just to give you perspective, the second-largest market in the world, China, has a market cap of $12.1 trillion. These seven stocks alone have added more in market cap than the entire German market, the French market, the Swiss market.”
Damodaran’s comments are important because he’s been repeatedly saying in the past that major technology companies are fully or overvalued. In September, he said on CNBC that if you go through the list of top tech stocks, “you are more likely to be overvalued than undervalued.”
But in his latest interview, Damodaran said that before we “dismiss” Mag. 7 stocks as “risky tech companies,” we should keep in mind that “these are the money machines in this market.”
However, when asked whether he believes we are not in any kind of “danger zone,” the professor said we are in the danger zone not just in terms of these seven stocks, but the market overall.
In this article we take a look at the Mag 7. stocks and their AI-related growth catalysts. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 74
Tesla is one of the notable companies in the Magnificent Seven group of stocks which according to Aswath Damodaran have become money machine value stocks.
Tesla Inc (NASDAQ:TSLA) has a forward P/E of 102 while its 14-day RSI value is 85, worse than 99% of 1342 companies in the Vehicles & Parts industry, according to data from GuruFocus.
However, some Wall Street analysts believe Tesla Inc (NASDAQ:TSLA) is undervalued.
Cathie Wood recently set a $2600 price target on Tesla Inc (NASDAQ:TSLA) for 2029, which present a whopping 1300% upside potential from the current levels. Wood thinks the robotaxi project has the potential to deliver $8 to $10 trillion in revenue by 2030.
However, many believe Tesla Inc (NASDAQ:TSLA) won’t be able to live up to the hype around its robotaxi plans. Each robotaxi is expected to have a price target of around $150K to $200K, with some estimates suggesting Tesla Inc (NASDAQ:TSLA) would need about $35 billion to develop a global feet of such cars. Amid inflation and lack of preference for electric cars, American families will probably stay away from spending a fortune on robotaxis, which could cause a blow to Tesla Inc’s (NASDAQ:TSLA) plans in the future.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The vast majority of the Fund’s underperformance this quarter stemmed from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla’s shares fell 29.3% during the period and detracted 13.41% from the Fund’s first quarter results. Although Tesla has contributed importantly to the Fund’s performance since 2014, on occasion it has detracted from quarterly performance. In previous instances when Tesla shares have underperformed during a discrete period, they have shortly afterwards reflected the strong growth of the underlying business and the stock has appreciated considerably. We believe that will be the case again, although cannot guarantee it.
A significant decline also occurred at the end of 2022. In that instance, investors had become concerned about a host of external factors. Investors believed the company founder, visionary, and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed a weak Chinese economy emerging from COVID and U.S. government policies would curtail the purchases of Tesla vehicles. These fears proved to be overblown. As the company achieved milestones in the succeeding year, the stock subsequently doubled over the next 12 months.
Overall, Tesla Inc (NASDAQ:TSLA) ranks 7th on Insider Monkey’s list titled Jim Cramer’s Latest Portfolio: Top 10 Stocks in July. While we acknowledge the potential of Tesla Inc (NASDAQ:TSLA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Tesla Inc (NASDAQ:TSLA) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.