Title: A Tussle between Tesla and Amazon Stocks: Elon and Jeff's Swap Game before 2025
Four top-performing stocks from the "Magnificent Seven" have surpassed the S&P 500's performance this year. Namely, Tesla (TSLA 0.15%) and Amazon (AMZN 0.01%) are among these standouts, with Tesla's shares climbing 57% and Amazon's soaring 49% respectively. Yet, some heavyweight billionaire hedge fund managers had different strategies during the third quarter.
Louis Bacon from Moore Capital Management decided to purchase 25,000 additional shares of Tesla, growing his position by 19%. Simultaneously, he reduced his stake in Amazon by 76%, selling off 616,475 shares. Tesla climbed to become his 13th-largest holding, while Amazon slipped to the 16th spot in his portfolio.
Citadel Advisors' Ken Griffin also favored Tesla over Amazon, acquiring 1.1 million shares to boost his position by nearly 400%. He, too, discarded some Amazon shares, selling off around 7.2 million, thereby decreasing his stake by 94%. Before this swap, Amazon was the hedge fund manager's largest holding, excluding options and index funds.
Dan Loeb from Third Point also threw his support behind Tesla, establishing an entirely new position by purchasing 400,000 shares. Simultaneously, he relinquished his top spot with Amazon by selling 1.4 million shares, cutting his stake by 27%. Born from this shift, Amazon is now the second-largest holding in Loeb's portfolio.
As investors scrutinize these large-scale trades, it's worth remembering that they took place in the third quarter, which ended a couple of months ago. Let's revisit the current and projected positions of Tesla and Amazon heading into 2025.
Unpacking Tesla's Debate
Despite experiencing a bit of a dip in market share, Tesla remains at the helm of battery electric vehicle manufacturing. Though its share encountered a slight dip of about 3% over the past year, fierce competition and a challenging market environment failed to completely halt the company's momentum.
The electric vehicle leader reported a 6% increase in deliveries in the third quarter after experiencing a 5% decrease in the preceding quarter. This resulted in a 8% revenue surge to $25 billion, while operating margin expanded by 3 percentage points. Non-GAAP earnings also saw an impressive 9% gain to $0.72 per diluted share.
Looking ahead, Tesla intends to introduce more budget-friendly electric vehicle models next year, with CEO Elon Musk speculating that deliveries could even increase by as much as 20-30% in 2025. However, the company's largest earning potential actually lies in the development of AI software and services.
Plans to unveil an unsupervised version of its full self-driving software in California and Texas next year coincide with the launch of an autonomous ride-hailing service in these regions. Additionally, Tesla is in discussions with other automakers to license its AI software.
Elon Musk believes artificial intelligence technology will significantly boost Tesla's gross margin, potentially surpassing 70%. But he considers his humanoid robot, Optimus, as the company's most valuable asset yet. During the third quarter earnings call, Musk shared his optimism, asserting, "I am confident in saying that we have the most advanced humanoid robot by a long shot."
Wall Street expects Tesla's adjusted earnings to grow by 28% in the upcoming year, which, despite sounding excessive, does factor in future revenue and margin increases. However, if Tesla doesn't reach its self-driving technology goals, or if it struggles with an autonomous ride-sharing service, the stock's value could plummet. Conversely, if Tesla succeeds, it could radically transform the mobility and transportation industries.
In essence, young investors (with long-term horizons) might want to consider purchasing a small stake in Tesla, but only if they're comfortable with market volatility. Timing these purchases opportunistically should to lead to better returns.
Examining Amazon's Footing
Amazon's dominance in e-commerce, digital advertising, and cloud computing still holds strong. As the company with the largest online marketplace in North America and Western Europe, Amazon continues to claim the number one position in sales. Moreover, it now ranks as the third-largest adtech company worldwide, while Amazon Web Services (AWS) remains the largest public cloud.
Amazon's dedication to AI across all its primary sectors has paved the way for increasing revenue and growing efficiency, particularly for its cloud computing business. In the last 18 months, AWS released nearly double the number of AI features than its competitors, according to CEO Andy Jassy. He further stated that AI revenue is growing at a triple-digit rate.
In the third quarter, Amazon posted impressive financial performance, beating estimates on both the revenue and earnings fronts. The company's revenue leapt 11% to $159 billion, chiefly due to a surge in advertising and cloud services sales. Simultaneously, operating margin expanded more than 3 percentage points, while GAAP earnings rose 52% to $1.43 per diluted share.
Looking at the next two years, eMarketer expects Amazon to gain further share in the e-commerce industry and digital advertising, while AWS is strategically positioned to capitalize on rising AI infrastructure and platform services demand. Wall Street projects Amazon's earnings to increase 26% in the upcoming year, making the current valuation of 49 times earnings appear reasonable. This translates to a reasonable PEG ratio of 1.9, underlining that the stock is neither cheap nor excessively priced.
With billionaire hedge fund managers having sold a portion of their Amazon shares, investors might want to consider buying a small position at this moment. Given the robust financial performance, innovative AI capabilities, and projected growth, most analysts agree that Amazon should continue to be a strong inclusion for investment portfolios.
In light of the hedge fund managers' shifts in their portfolios, some investors might be interested in investing more in Tesla, considering its promising growth in the electric vehicle market and potential in AI technology. For instance, Tesla's CEO Elon Musk has expressed confidence in Tesla's full self-driving software and Optimus, a humanoid robot, significantly boosting the company's gross margin.
In contrast, Amazon's stronghold in e-commerce, digital advertising, and cloud computing, as well as its dedication to AI, continues to ensure its leading position. Amazon's impressive financial performance in the third quarter, along with Wall Street's projection of a 26% earnings increase in the upcoming year, suggests that it could remain a solid investment choice for diversified portfolios.
