This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) have been very rewarding long-term investments, but the hedge fund billionaires listed below bought Tesla and sold Amazon in the third quarter:
- Louis Bacon of Moore Capital Management bought 25,000 shares of Tesla, increasing his position by 19%. He also sold 616,475 shares of Amazon, reducing his position by 76%.
- Israel Englander of Millennium Management bought 225,760 shares of Tesla, increasing his position by 51%. He also sold 7.9 million shares of Amazon, reducing his position by 87%.
- Dan Loeb of Third Point bought 400,000 shares of Tesla, starting a new position. He also sold 1.4 million shares of Amazon, reducing his position by 27%.
- Chris Rokos at Rokos Capital Management bought 100,000 shares of Tesla, starting a new position. He also sold 755,165 shares of Amazon, reducing his position by 39%.
Importantly, while tracking the stocks hedge fund managers hold can provide inspiration, the trades listed above happened in the third quarter, which ended over three months ago, and the fourth-quarter update will not be available until mid-February. So, here's a more current look at Tesla and Amazon.
Tesla: The stock certain billionaires bought in the third quarter
Tesla shares fell sharply on January 2 when the company reported 495,570 fourth-quarter deliveries, about 10,000 units short of the consensus estimate. But the stock rebounded the next day on reports of strong sales in China and an upgrade from Canaccord. Importantly, while Tesla led the market in electric car sales through November, its market share has declined across all three of its major markets: U.S., Europe, and China.
Tesla has a few important catalysts on the horizon that could lead to upward revisions in earnings estimates, which may send shares higher. First, it plans to launch a sub-$30,000 vehicle (reportedly called the Model Q) in the first half of 2025. Second, touting a 1,000-fold improvement in its full self-driving (FSD) software this year, Tesla plans to launch an unsupervised version of the software in California and Texas next year.
Additionally, Tesla plans to launch an autonomous ride-sharing service in California and Texas in 2025, and potentially other states too, according to CEO Elon Musk. That could be an inflection point for the business. Musk has previously estimated robotaxis could push Tesla's gross margin to 70% or higher. Comparatively, its gross margin was about 20% in the most recent quarter.
Wall Street expects Tesla's adjusted earnings to increase 26% over the next four quarters. That makes its current valuation of 164 times adjusted earnings look outrageously expensive. But not all Wall Street analysts are pessimistic. Dan Ives at Wedbush on November 29 said, "Today, I view Tesla as the most undervalued AI name on the market."
Personally, I think the hedge funds that bought Tesla in the third quarter were making a bet on Donald Trump winning the presidential election. I would not be surprised if many sold down their positions during the fourth quarter, especially since the stock has skyrocketed post-election. Having said that, investors who are confident Tesla can disrupt the mobility and transportation industries should own a long-term position.
Amazon: The stock certain billionaires sold in the third quarter
Amazon has three growth engines in e-commerce, digital advertising, and public cloud services. The company not only has a strong position in those markets, but also it's using artificial intelligence (AI) to generate more revenue and improve efficiency across all three business segments.
For instance, Amazon operates the most visited online marketplace in the world, and it supports its merchants with a vast logistics network. Machine learning models informed by mountains of shopper data make product recommendations to improve sales on the marketplace. They also optimise inventory and delivery routes to make logistics more efficient.
Amazon is the third-largest ad tech company as measured by sales, and it's gaining market share so quickly it could take second place from Meta Platforms before 2030, according to eMarketer. Machine learning models informed by marketplace data help brands target ad campaigns, and generative AI helps brands create media content for those campaigns.
Finally, Amazon Web Services (AWS) is the largest public cloud as measured by revenue from infrastructure and platform services. Its 31% market share nearly equals the 33% market share Microsoft and Alphabet have combined. CEO Andy Jassy recently said, "In the last 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined."
Wall Street anticipates Amazon's adjusted earnings will increase 26% over the next four quarters. That makes the current valuation of 46 times adjusted earnings look reasonable. For that reason, I think the hedge fund billionaires who sold Amazon in the third quarter made a mistake. Indeed, the stock trades at $219 per share at the time of writing, which is 10% above its third-quarter high of $200 per share, and 36% above its third-quarter low of $161 per share.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
