Home Finance Why Wall Street is revaluing Tesla’s position and looking at Netflix

Why Wall Street is revaluing Tesla’s position and looking at Netflix

by Eclipsnews
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Tesla (TSLA) has work to do if it wants to remain among the tech elites.

Despite a surprise earnings report that sent the EV maker’s shares soaring — resulting in the biggest intraday jump in more than a decade — Wall Street is once again revaluing its inclusion in the Magnificent Seven.

The group’s members – Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT) and Tesla – dominated the markets in 2023 and have returned as a potential key figure. an important factor as the third quarter earnings season kicks off. The group is expected to lead with 18.1% annualized earnings growth in the third quarter, and four of its stocks – Nvidia, Alphabet, Amazon and Meta – are expected to be among the top 10 contributors to the company’s earnings growth the S&P 500. to FactSet.

The Tesla debate has returned as concerns persist despite the earnings revival. Tesla’s third-quarter profits rose 17%, a dramatic turnaround after two quarters of declines.

That’s not enough for Wall Street: Strategists tell me it still risks falling behind the rest of Big Tech due to overhyped fundamentals.

Jay Woods, chief strategist at Freedom Capital Markets, compared Tesla to bitcoin, suggesting the stock is traded more on “hopes and dreams” than fundamentals.

“Tesla had its moment in the sun… to me it looks more like a Cisco or an Intel during the dotcom bubble, and now we’re moving on to other things,” Woods warned in Yahoo Finance’s Morning Brief.

Although CEO Elon Musk has often categorized Tesla as a technology company, it will likely take years for the company’s AI and robotics bets to pay off. In the meantime, Tesla must rely on improving its core automotive business – a stark contrast to its peers in the Magnificent Seven.

“I’ve been in tech since 1990 and I remember the Four Horsemen… We didn’t add auto stocks with Cisco, Intel, Dell and Microsoft,” Dan Morgan, a longtime tech investor, told me.

Tesla’s recent underperformance and high valuation further puts pressure on its position among its Mag Seven peers. At almost 73 times forward earnings, its price-to-earnings ratio is much higher than that of others in the group.

As of Friday afternoon, just over 40% of Tesla analysts rated the stock Buy, according to Bloomberg data, making Tesla the least favorite Magnificent Seven stock among analysts.

In terms of replacing Tesla, Netflix has proven to be a strong competitor.

Wealth Enhancement Group’s Ayako Yoshioka noted to me that Netflix “makes the most sense,” as the original FAANG member’s shares recently hit an all-time high, buoyed by strong earnings and solid guidance.

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