We recently published a list of Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. Since Tesla Inc (NASDAQ:TSLA) ranks 7th on the list, it deserves a deeper look.
The reality is finally catching up to the AI hype as investors await to see ROI on huge spending on AI chips and infrastructure. Dan Niles, Niles Investment Management founder and portfolio manager, during an interview with CNBC last month, called the decline in Mag. 7 stocks after Q2 earnings representative of a “fundamental shift” in the industry.
“I know it’s popular to talk about AI because these stocks are driving the market, but at a certain point, you want to get a return on all of this money you are investing. And if your forward revenue estimate is going lower not higher but your CapEx is going up, at some point those two things are going to collide.”
Niles said that major tech companies went through a “digestion” period after seeing huge returns during the COVID-19 pandemic days, and he expects the same to happen as we move into the next year.
The analyst said that on an equal-weighted basis, the broader market is up when compared with Mag. 7 stocks. He recommended investors to buy the stocks that would benefit from rate cuts. These include consumer staples, utilities, telecom services, etc.
Niles said the other 493 companies could drive the market to new “all-time record highs.”
For this article, we picked 10 AI trending stocks that are moving after latest analyst ratings and earnings. With each company 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: 85
Tesla is in the limelight as its robotaxi event inches near.
William Blair recently started covering TSLA shares with an Outperform rating.
The firm’s bullish stance is based on the belief that Tesla’s energy storage business is underappreciated by the market.
Analyst Jed Dorsheimer said Tesla Energy as a key part of the company’s future, noting that investor focus is likely to shift from electric vehicles to energy storage in light of tempered EV expectations. He pointed to grid stabilization, data center expansion, and renewable energy integration as major growth drivers for Tesla’s energy storage segment.
Dorsheimer also called Tesla a technology leader, comparing its future potential to Apple’s ecosystem, with opportunities in AI, robotaxis, and robotics adding to its growth prospects.
Tesla trades at 29 times William Blair’s 2026 EBITDA estimate and 49 times its 2026 EPS estimate. While these high multiples are hard to justify, the firm believes that Tesla’s strong leadership under Elon Musk, along with its culture of innovation and technological edge, supports the stock’s premium valuation.
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.
Cathie Wood recently set a $2600 price target on Tesla Inc (NASDAQ:TSLA) for 2029, which presents a whopping 1300% upside potential from the current levels. Wood thinks the robo taxi 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 robo taxi plans. Each robo taxi 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 fleet of such cars. Amid inflation and lack of preference for electric cars, American families will probably stay away from spending a fortune on robo taxis, 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 Q2 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar and energy storage products. The stock contributed as Tesla continued to drive vehicle manufacturing costs lower, accelerate the launch of new models, and invest heavily in its lucrative AI initiatives. Shareholders reaffirmed the CEO’s compensation plan, alleviating personnel and legal uncertainties. Despite material operational complexities resulting in significant shutdowns of key manufacturing facilities and lower sales volume, Tesla presented better-than-expected margins in the quarter. It expects to launch a lower cost model as soon as late 2024, which should result in accelerated revenue growth, reduced manufacturing costs, and increased factory utilization. The company continued to advance its autonomous driving capabilities, expanding its already significant data centers and developing its humanoid robot Optimus. These investments increased confidence in the attractive growth opportunities that remain ahead.”
Overall, Tesla Inc (NASDAQ:TSLA) ranks 7th on Insider Monkey’s list titled Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. 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.
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Disclosure: None. This article is originally published at Insider Monkey.
