We recently published a list of Famous Analyst Says You Should Buy the Dip on These AI Stocks. Since Tesla, Inc. (NASDAQ:TSLA) ranks 8th on the list, it deserves a deeper look.
Gene Munster, managing partner at Deepwater Asset Management, said in a latest interview with CNBC that the key reason behind the latest decline in tech stocks was major companies projecting high CapEx and giving no updates on AI monetization. Munster, however, thinks AI spending is necessary for these companies to reap rewards in the future. Munster referred to a latest interview of Mark Zuckerberg in which he said if his company does not keep spending on AI it may miss the biggest opportunity in the next 10-15 years. Munster said Zuckerberg believes this AI spending “cannot slow down.”
“I am most optimistic because that CapEX number, if you’re gonna boil it down to one point, it’s gonna be higher for longer and it’s good for AI.”
Asked whether investors should stick with mega-cap AI stocks or move on to smaller companies that could benefit from this AI spending, Munster said that depends on to what degree you believe in the transformative power of AI.
“If you are in my camp.. which I think it (AI) will be more transformative than the internet, then small companies and the big companies are going to participate.”
Munster thinks the AI-led bull market could last for 3-5 years before ending in what he called a “spectacular bubble burst.”
For this article we picked the AI stocks Gene Munster and his firm Deepwater Asset Management hold, according to the disclosures on CNBC. 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
Gene Munster continues to be bullish on Tesla.
Amid a decline in EV sales growth, Elon Musk’s only option is to go all-in on AI. After a Twitter poll that overwhelmingly voted in favor of Tesla Inc (NASDAQ:TSLA) investing capital in xAI, Musks’ AI company, the CEO of Tesla said he’d discuss investing $5 billion in xAI with Tesla Inc (NASDAQ:TSLA).
Elon Musk said in a latest earnings call with analysts that massive discounts from Tesla Inc (NASDAQ:TSLA) competitors created headwinds for the company in the most recently reported quarter.
Tesla Inc (NASDAQ:TSLA) has also delayed its robotaxi event until October. All possible catalysts for Tesla stock lie far into the future and the reality is revealing itself to Elon Musk who admitted during the latest earnings call that he’s been overly optimistic about robo taxis.
“It’s difficult, obviously, my predictions on this have been overly optimistic in the past. So I mean, based on the current trend, it seems as though we should get miles between interventions to be high enough that — to be far enough in excess of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year.”
During the second quarter, Tesla Inc (NASDAQ:TSLA) automotive gross margin fell to 18.47% from 19.22% the previous year. Non-automotive revenue, now 22% of total sales compared to 14.67% in Q2 2023, has a lower gross margin, negatively impacting overall profitability. Tesla Inc (NASDAQ:TSLA) is still heavily reliant on EVs where demand is falling. Tesla energy business is not strong enough to offset declines in the core business.
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 8th on Insider Monkey’s list titled Famous Analyst Says You Should Buy the Dip on These AI Stocks. 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 TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
