Tesla Deeply Discounted, Entry Point Coming: I/O Fund

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Bloomberg Apr 24 03:59 · 24.8k Views

I/O Fund Lead Tech Analyst Beth Kindig says Tesla shares are heavily discounted, and that a point of entry might open soon. She shares her global EV and tech outlook on "Bloomberg: The China Show".

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Transcript

  • 00:00 Start with Tesla, why not
  • 00:02 cheaper models?
  • 00:04 Do you think they'll do it?
  • 00:05 How
  • 00:05 big of a game changer would that be
  • 00:08 as far as the company's financials are concerned?
  • 00:12 Hi, David, good to see you again.
  • 00:13 It will certainly drive, you know, number of vehicles, deliveries
  • 00:17 and things of that sort.
  • 00:18 What
  • 00:19 is being pointed out, and it's very important to realize, is that it could continue to weigh on margins because if a lower price is going to lower the margins, the margins are already walking a very thin line right now.
  • 00:30 Even though there's a $25,000 vehicle rumored,
  • 00:33 as you likely know, BYD has one that is as low as $11,000.
  • 00:38 So will it solve the problem that Tesla faces,
  • 00:41 which is that
  • 00:42 in China they're losing market share?
  • 00:45 It may not solve that problem.
  • 00:47 The problem it could solve, which is quite important, is that
  • 00:50 the United States has been facing
  • 00:52 high interest rates for a long time.
  • 00:54 A lot of people want to look at Tesla stock as a Musk, Elon Musk problem.
  • 00:57 It's not.
  • 00:58 It's an interest rate problem.
  • 01:00 That's why we see the same issues around Apple right now.
  • 01:03 Struggling to keep up with being a high-priced device
  • 01:06 and overall a lower price vehicle in the United States could certainly help spark some new
  • 01:10 sales.
  • 01:11 Again.
  • 01:12 The margins would likely continue to remain an issue.
  • 01:14 In that case.
  • 01:17 Can you tell us a bit more about what what they can do in China?
  • 01:20 I think it was Evercore yesterday that said, you know,
  • 01:22 yeah, they can't really afford to keep slashing these prices because this is really going to wipe out their earnings
  • 01:28 in the mainland.
  • 01:29 Do you think the market is properly pricing
  • 01:31 that sort of scenario?
  • 01:34 Yes, it's, it's, it's definitely the the bigger deal because you're
  • 01:39 not going to be able to replace that anytime soon.
  • 01:42 However,
  • 01:43 as AI approaches,
  • 01:45 that's the piece that Tesla's going to have to execute on.
  • 01:48 So what we're seeing is a moment where it's a little too early for AI software.
  • 01:52 As you know, AI hardware has been
  • 01:54 a huge boom
  • 01:55 with H100 moment last year from NVIDIA.
  • 01:58 But AI software,
  • 01:59 we're not in that cycle right now.
  • 02:01 And that's what Tesla really, truly needs in order for
  • 02:04 its stock to resume where it was before the Wall Street darling
  • 02:08 and that AI software cycle.
  • 02:10 If I were to give you, my best estimate would be more of a 2026 discussion, so between now and then.
  • 02:15 And they have a China problem
  • 02:16 and how they solve that China problem will not be an easy answer for Tesla.
  • 02:22 So Matthew mentioned if, if rates
  • 02:24 are the main culprit, why margins have,
  • 02:27 well multiple, it's not margins, why multiples have compressed and the stock is down.
  • 02:31 What will be the best determinant whether or not the stock has bottomed as well?
  • 02:34 Do I look at rates or do I look at margins?
  • 02:38 Those two will go.
  • 02:39 Those two will
  • 02:40 move together because they have to continue to lower average sales prices to keep up with
  • 02:44 the higher costs of the vehicle to the consumer.
  • 02:46 Obviously the rates make the vehicle
  • 02:48 more money per month to the consumer,
  • 02:51 so those two will be In Sync.
  • 02:52 The minute those margins bottom though, or the minute we start to get a more dovish Fed,
  • 02:57 this is going to be an excellent buy.
  • 02:58 This stock is deeply on sale.
  • 03:00 It's very rare that I can
  • 03:02 look at a Mag 7 stock that is
  • 03:04 deeply discounted in the way that Tesla is.
  • 03:06 If this thing continues to go lower,
  • 03:09 it's an attractive
  • 03:11 entry eventually
  • 03:12 because this company's not going to go out of business.
  • 03:15 They're an AI leader
  • 03:16 if you're patient enough
  • 03:18 and all of those.
  • 03:20 Come together to don't get too cold, ice cold on a stock like Tesla,
  • 03:24 which is arguably one of the better top ten stocks
  • 03:27 in the market.
  • 03:31 So
  • 03:32 certainly there's
  • 03:33 there's more room for improvement here.
  • 03:34 I'm just wondering, you know, given what you're seeing in the mag 7 right now, it seems like
  • 03:37 Tesla's the weakest link.
  • 03:39 Where else are you looking for, you know, in terms of AI contributions
  • 03:43 to to revenue or even CapEx outlook for AI?
  • 03:46 What stands out to you among the the Seven now?
  • 03:50 Yes, I would say Microsoft is a very big report this week.
  • 03:54 This has always been known as the cloud bellwether.
  • 03:57 It is now the AI bellwether.
  • 03:59 And the reason why AI continues to be very important is that this is where the real growth is happening.
  • 04:04 If you look at certain.
  • 04:05 In pockets
  • 04:05 outside of that, we're seeing a lot of deceleration if you look very closely.
  • 04:09 So we want to see
  • 04:11 Microsoft continue to do what it did before.
  • 04:14 Two quarters ago,
  • 04:15 AI had a three-point contribution, Azure, 1/4 ago it had a six point, so it doubled.
  • 04:21 We're talking about about $75 billion segment.
  • 04:23 If we continue to see that ramping up, I think the market will be very excited to see that from the enterprise
  • 04:30 segment, from enterprise companies.
  • 04:32 And of course, when it comes to Big Tech CapEx, Tesla's report could not have been more bullish
  • 04:37 in terms of the H100 equivalents and how.
  • 04:40 They grew those 130% across the board.
  • 04:42 Big tech has those big pockets.
  • 04:45 It's, it is fueling a lot of this
  • 04:47 growth cycle that we're in, in terms of AI,
  • 04:52 right?
  • 04:52 Others reporting this week and apologies if we're going through one after the other.
  • 04:56 I mean,
  • 04:57 there's just so much happening this week.
  • 04:59 Beth
  • 04:59 Meta,
  • 05:00 how are you thinking about this?
  • 05:03 Meta is a very, very interesting stock because
  • 05:07 as you know, last year it was known for the year of efficiency.
  • 05:10 They really tightened their belt margins, expanded greatly expanded.
  • 05:14 What we want to look for right now is will Meta become a full-fledged AI stock?
  • 05:21 This will be shown in the average revenue per user.
  • 05:23 We're already seeing this phenomenal
  • 05:26 rebound.
  • 05:27 It was only 2.5% growth last year this quarter
  • 05:30 and it's going to be 25%,
  • 05:33 especially in the United States and Canada.
  • 05:34 So they're basically using AI
  • 05:36 to greatly improve their average revenue per user.
  • 05:39 Eventually
  • 05:40 Meadow will become a full-fledged AI stock.
  • 05:43 When that moment happens, it could be quite bullish
  • 05:45 since adtech is so incredibly cash efficient.
  • 05:47 You have that perfect
  • 05:49 combination where Tesla
  • 05:51 with high interest rates,
  • 05:53 it's kind of kicked out of the mag 7.
  • 05:56 Those with those,
  • 05:57 you know, large cash reserves have high free cash flow.
  • 06:00 Margins that could only
  • 06:02 potentially get better with AI
  • 06:03 will be greatly rewarded in the current environment we have with interest rates.
  • 06:09 What about the impact of AI on, on Alphabet?
  • 06:12 I know they've come through with their, their AI strategy, but you know, they, they basically have monopolized the, the search
  • 06:18 side of things.
  • 06:18 I mean, does the emergence of ChatGPT
  • 06:21 change that anyway?
  • 06:22 I know they fended off multiple threats in the past before.
  • 06:25 Is this time any different?
  • 06:27 Yes.
  • 06:28 So what we're seeing is even if search puts up
  • 06:31 a decent growth,
  • 06:32 the market is not convinced that
  • 06:34 AI is driving that.
  • 06:35 And if AI is not driving that
  • 06:37 be due to lack of engagement on their AI products,
  • 06:40 then they just have many, many competitors on their heels.
  • 06:43 And we're talking obviously open AI, but there's a lot in the private markets that is happening right now too.
  • 06:49 So you'll see the market a touch nervous until you see that direct impact.
  • 06:53 And also on
  • 06:55 Alphabet, I would add
  • 06:56 until Google Cloud starts to be very, very consistent in the way that Azure has been and Azure
  • 07:03 re accelerated over the last quarter.
  • 07:05 That's the other thing the market will want to see.
  • 07:07 If you're truly having an AI impact, you should accelerate from here.
  • 07:10 It should be consistent and it can be quite lumpy.
  • 07:14 So until that smooths out right now, Alphabet
  • 07:17 will eventually again be an AI player, but the timing is more difficult to predict because it's been lumpy.
  • 07:23 They've
  • 07:24 went from being a leader to now a laggard in terms of
  • 07:28 AI capabilities.
  • 07:31 So, Beth, all things,
  • 07:32 all this being said and other things
  • 07:35 still,
  • 07:36 I mean
  • 07:36 on the table right now and given the drop we've seen
  • 07:40 over the last few weeks or so,
  • 07:42 tell us how you've been managing your exposure.
  • 07:44 What have you been adding the most?
  • 07:45 What have you been reducing?
  • 07:46 What are you excited about
  • 07:47 going into these other earnings reports?
  • 07:49 Of course, too.
  • 07:51 Yes, we continue
  • 07:54 to accumulate semiconductors at lower prices.
  • 07:56 As you know, last week was brutal
  • 07:58 for certain stocks.
  • 08:00 NVIDIA of course, but there's other
  • 08:02 AI
  • 08:03 accelerators
  • 08:04 and companies.
  • 08:05 That are contributing to AI data center
  • 08:07 and we can get those at lower levels, we'll gladly take it.
  • 08:10 So we have been trimming any area that's not a semiconductor AI data center.
  • 08:15 Better beneficiary
  • 08:16 and, and, and, and doubling down on those.
  • 08:19 You have many competitors to NVIDIA coming online right now.
  • 08:22 When I say many, I'm talking more around
  • 08:25 AMD and then you have Broadcom, which is more in the custom silicon market.
  • 08:29 And then we also have this memory battle that's going on
  • 08:32 right now where AI accelerators are competing on memory, not computing power.
  • 08:36 That's very key to understand how 2024 will unfold.
  • 08:39 So there's some memory beneficiaries as well
  • 08:42 that are important.
  • 08:43 And I'm sure you talk about it on your program as well from South Korea,
  • 08:46 the United States happens to have Micron and then there's equipment suppliers for the memory.
  • 08:51 There's a lot of stocks to look at in the AI data center
  • 08:54 and beta being the bellwether, but you know that there's a few you can look at and we are doubling down on those.