1) James on 2Q 2024 Earnings Preview : Can AI boost Tesla?
Below is a recap of our webinar, “Can AI Boost Tesla, Amazon, and Apple Earnings?”
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$Tesla Motors(TSLA)$ will report 2Q2024 earnings on July 23rd after the market close. Tesla is considered the laggard among the Magnificent 7 stocks due to the following reasons:
The year-to-date return for Tesla is 1.67%, making it the worst-performing stock among the Magnificent 7.
Most of the Magnificent7 stocks are trading near their all-time highs, but Tesla is still trading about 38% below its all-time high.
$Tesla Motors(TSLA)$ missed deliveries estimates 6 out of the past 10 quarters. However, Tesla's latest car delivery numbers beat expectations by 1%, causing the share price to jump by 10% on July 2nd. The latest delivery numbers also showed that Tesla is still the world’s largest EV seller. While it seems that BYD is catching up and may outsell Tesla soon, it does not necessarily make $BYD Co., Ltd.(BYDDY)$ a better investment as BYD does not disclose its EV profitability. Tesla should still be the most profitable EV maker in the world, even with an operating margin of just 5.5%.
Wall Street currently estimates quarter-on-quarter and year-over-year growth in revenue and operating income in 2Q2024, suggesting the worst is over for $Tesla Motors(TSLA)$ . The gross profit margin and operating margin forecasted by analysts might be a bit conservative, as I would expect some upside surprises this quarter due to the growth in Energy Generation and Storage.
$Tesla Motors(TSLA)$ distributed 9.4 gigawatt hours (+154% YoY) of energy storage in 2Q2024, marking an all-time high deployment. Energy Generation and Storage segment seems likely to help increase Tesla's overall gross profit margin and operating margin. The Energy segment is also enjoying the second-highest profit margin at the moment, with its latest gross profit margin at 24.6%. I foresee the gross profit margin can grow even higher, especially considering that the competitor, Enphase, is enjoying a much higher gross profit margin of 44% in the same quarter.
The biggest downside risks are that Elon Musk may not obtain the 25% voting rights, and $Tesla Motors(TSLA)$ still needs to challenge the judge again in a hearing in the coming weeks regarding Elon Musk's $56 billion pay package.
· The current Bloomberg Analysts Consensus 12-month target price for $Tesla Motors(TSLA)$ is $203.74, representing a downside potential of 19.4%.
· Tesla's valuation varies significantly depending on how analysts factor in FSD take rate, Optimus, Robotaxi, and Dojo computing. If investors believe none of these AI initiatives will succeed, they should not gain exposure to Tesla. However, if any of these AI initiatives succeed, they could potentially add hundreds of billions to Tesla’s market cap.
· Despite a weaker near-term earnings outlook, I maintain a long-term constructive view on Tesla. We should probably look at 2024 as a transition year for Tesla. Nevertheless, I view any weakness in the share price as a good opportunity to accumulate for the long term.
Nevertheless, I view any weakness in the share price as a good opportunity to accumulate for the long term.
In conclusion, the main investment thesis for $Apple(AAPL)$ is centered around the iPhone upgrade cycle. As for $Tesla Motors(TSLA)$ , I see 2024 as a transition year, with most growth expected to materialize in 2025. However, if Elon Musk continues to make ambitious promises on Twitter or during earnings calls, Tesla's stock price is likely to rise this year.
Regarding $Amazon.com(AMZN)$ , the benefits from cost optimization are tapering off. However, the growth in generative AI might arrive just in time to boost profit margins.
In summary, I believe all three of these stocks are long-term beneficiaries of AI.
All of the Magnificent Seven stocks appear quite expensive at the moment. For instance, Apple has a P/E ratio of 33.8x, Amazon is at 32.6x, and Tesla is at 94.5x. However, investors are willing to apply higher P/E ratios for AI-related stocks.
Currently, AI is poised to kickstart a new earnings growth cycle for these stocks, akin to Nvidia's experience over the past year. So, unless earnings significantly miss expectations for two to three consecutive quarters, I may start to doubt my optimism about AI. Until then, I believe the valuations of these AI stocks are justified.
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