We recently published a list of the 7 Best AI Value Stocks that are “money-making machines” according to Aswath Damodaran of New York University, and Tesla Inc (NASDAQ:TSLA) ranks seventh on the list, so it’s worth taking a closer look.
Aswath Damodaran is a professor of finance at New York University’s Stern School of Business. His views on the economy and stock valuation have garnered considerable attention from analysts. In a recent interview with CNBC, Damodaran said that the Magnificent Seven stocks have become “value stocks for investors who care about earnings and cash flow.”
“Over the past year and a half, these seven companies alone have added $8.8 trillion to their market capitalization. For reference, the second largest market, China, has a market capitalization of $12.1 trillion. These seven companies alone have added more market capitalization than the combined market capitalizations of the German, French and Swiss markets.”
Damodaran’s comments are significant because he has repeatedly said in the past that big tech companies are overvalued or undervalued. In September, he told CNBC that if you look at any list of the top tech stocks, “they’re more likely to be overvalued than they are undervalued.”
But in a recent interview, Damodaran said that before “dismissing” Mag. 7 shares as “risky technology companies,” people should keep in mind that “these are money-making machines in this market.”
But when asked if he thought we were in some kind of “danger zone,” the professor said we were in the danger zone not just for these seven stocks but for the market as a whole.
In this article, we’ll look at Mag 7 stocks and their AI-related growth drivers. For each stock, we’ve included the number of hedge fund investors. Why would you care about stocks that hedge funds are flocking to? The reason is simple: our research shows that by mimicking the top picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating its benchmark by 150 percentage points (more here).
Is Tesla Inc (NASDAQ:TSLA) the best AI value stock that’s a “money-making machine,” according to NYU’s Aswath Damodaran?
Pixabay/Public Domain
Tesla Inc. (NASDAQ:TSLA)
Number of hedge fund investors: 74
Tesla is one of the noteworthy companies in the “Magnificent Seven” group of stocks that have become money-making machine value stocks, according to Aswath Damodaran.
According to data from GuruFocus, Tesla Inc. (NASDAQ:TSLA) has a Forward P/E ratio of 102 and a 14-day RSI of 85, which puts it worse than 99% of the 1,342 companies in the Automotive & Parts industry.
However, some Wall Street analysts believe Tesla (NASDAQ:TSLA) is undervalued.
The story continues
Cathie Wood recently set a 2029 price target for Tesla (NASDAQ:TSLA) of $2,600, which represents a staggering 1,300% upside potential from current levels. Wood believes the robotaxi project could bring in $8 trillion to $10 trillion in revenue by 2030.
However, many believe that Tesla (NASDAQ:TSLA) will not live up to the expectations of its robotaxi plans. The target price per robotaxi is expected to be around $150,000 to $200,000, and it is estimated that it would cost Tesla (NASDAQ:TSLA) around $35 billion to develop such vehicles worldwide. Inflation and low interest in electric vehicles will discourage US families from spending big bucks on robotaxi, which could deal a blow to Tesla’s (NASDAQ:TSLA) future plans.
In its Q1 2024 investor letter, Baron Partners Fund said the following about Tesla Inc. (NASDAQ: TSLA):
“The majority of the fund’s poor performance this quarter can be attributed to the fund’s 10-year investment in Tesla Inc. (NASDAQ:TSLA). Tesla shares have fallen 29.3% over the period, dragging down the fund’s first quarter performance by 13.41%. Tesla has been a significant contributor to the fund’s performance since 2014, but it has also been a drag on quarterly performance. In the past, when Tesla shares have underperformed for a period of time, they have shortly thereafter been followed by a significant increase in the share price, reflecting strong growth in the underlying business. We believe this will be the case again this time, but can provide no guarantees.
There was also a significant sell-off at the end of 2022. At the time, investors were concerned about a variety of external factors. They thought the company’s founder and visionary CEO, Elon Musk, was distracted by the Twitter acquisition. They also thought that the impact of COVID would weaken the Chinese economy and that US government policies would discourage purchases of Tesla cars. These concerns were overblown. The company hit milestones the following year and the stock price doubled in the following 12 months.
Overall, Tesla Inc. (NASDAQ:TSLA) ranks #7 on Insider Monkey’s “Jim Cramer’s Latest Portfolio: Top 10 Stocks for July” list. While we acknowledge the potential of Tesla Inc. (NASDAQ:TSLA), we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you’re looking for AI stocks that are more promising than Tesla Inc. (NASDAQ:TSLA) but whose shares trade at less than 5 times earnings, check out our report on the cheapest AI stocks.
Read next: Analysts see a new $25 billion “opportunity” for NVIDIA, and Jim Cramer recommends these stocks.
Disclosures: None. This article was originally published on Insider Monkey.
