Four members of the "Magnificent Seven" have outperformed the benchmark S&P 500 (SNPINDEX: ^GSPC) year to date. Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) are included in that number, with shares advancing 57% and 49%, respectively. But the billionaire hedge fund managers below bought one and sold the other in the third quarter.
- Louis Bacon of Moore Capital Management bought 25,000 shares of Tesla, increasing his position by 19%. Meanwhile, he sold 616,475 shares of Amazon, reducing his stake by 76%. Tesla rose to his 13th-largest holding, while Amazon fell to his 16th-largest.
- Ken Griffin of Citadel Advisors bought 1.1 million shares of Tesla, increasing his position by nearly 400%. Meanwhile, he sold 7.2 million shares of Amazon, reducing his stake by 94%. Amazon had been his largest holding, excluding options and index funds.
- 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 stake by 27%. Amazon had been his largest holding, but it now ranks second.
Investors can learn a lot by tracking trades made by accomplished fund managers, but it's important to keep things in perspective. The trades above were made in the third quarter, which ended two months ago. Here's what investors need to know about Tesla and Amazon as we head into 2025.
Tesla: The stock some billionaires were buying
Tesla is the leading manufacturer of battery electric vehicles, though its market share fell about 3 points in the past year amid increased competition and a challenging economic environment. During that period, the company reported disappointing financial results in several consecutive quarters as price cuts meant to boost demand cut into margins.
Tesla began to regain some momentum in the third quarter. Deliveries increased 6% after falling 5% in the prior quarter. In turn, revenue increased 8% to $25 billion, operating margin expanded 3 percentage points, and non-GAAP earnings increased 9% to $0.72 per diluted share. The company also said it will introduce more affordable vehicle models next year, and CEO Elon Musk believes deliveries could jump 20% to 30% in 2025.
However, Tesla's largest opportunity lies in artificial intelligence (AI) software and services. The company plans to release an unsupervised version of its full self-driving (FSD) software in California and Texas next year. It will also launch an autonomous ride-hailing service in those markets. Additionally, Tesla is in talks to license its FSD software to other automakers.
Elon Musk says gross margin could top 70% as autonomous driving technology becomes a larger source of revenue. But he believes the humanoid robot Optimus will be the company's most valuable product. On the third-quarter earnings call, he told analysts, "I feel confident in saying that we have the most advanced humanoid robot by a long shot."
Looking ahead, Wall Street estimates Tesla's adjusted earnings will increase by 28% over the next year, which makes the current valuation of 160 times adjusted earnings look absurd. But that consensus estimate fails to account for revenue increases and margin expansion that autonomous driving technology may bring in a few years, and the market is absolutely pricing in those possibilities, at least to some degree.
That puts investors in a tricky position: If Tesla fails to achieve its goals surrounding FSD and autonomous ride-sharing, the stock will likely crash. But if Tesla does accomplish those goals, it could revolutionize the mobility and transportation industries. That same logic applies to its ambitions in robotics.
Personally, I think young investors (i.e., those with a long time horizon) who are comfortable with volatility should have some exposure to Tesla. While the stock is undeniably expensive, anyone who meets those criteria should consider buying a tiny position today. But I also think better opportunities will present themselves in the future, so shareholders should be prepared to buy the stock on dips.
Amazon: The stock some billionaires were selling
Amazon has a strong position in e-commerce, digital advertising, and cloud computing. Specifically, it operates the largest online marketplace in North America and Western Europe as measured by sales. It is the third-largest adtech company worldwide. And Amazon Web Services (AWS) is the largest public cloud.
The company is leaning into artificial intelligence across all three segments to increase revenue and improve efficiency, especially in its cloud computing business. In the last 18 months, AWS released nearly twice as many machine learning and generative AI features as the other leading public clouds combined, according to CEO Andy Jassy. He also said AI revenue was growing at a triple-digit pace.
Amazon reported solid financial results in the third quarter, beating estimates on the top and bottom lines. Revenue increased 11% to $159 billion due to particularly strong sales growth in advertising and cloud services. Meanwhile, its operating margin expanded more than 3 percentage points, and generally accepted accounting principles (GAAP) earnings jumped 52% to $1.43 per diluted share.
Importantly, according to eMarketer, Amazon is expected to gain share in e-commerce and digital advertising in the next two years. Additionally, AWS is ideally positioned to benefit as demand for AI infrastructure and platform services increases, given it has nearly as much market share as Microsoft Azure and Alphabet's Google Cloud combined.
With that in mind, Wall Street expects Amazon's earnings to increase 26% over the next year. That seems like a reasonable estimate, considering the tailwinds behind the business, and it makes the current valuation of 49 times earnings look tolerable. Those numbers give a price/earnings-to-growth (PEG) ratio of 1.9, which is neither cheap nor outrageously expensive.
Despite several billionaires selling Amazon shares, patient investors should feel confident buying a small position today. I think most Wall Street analysts would agree with that statement. Among the 70 analysts who follow Amazon, 94% have a buy rating on the stock.
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*Stock Advisor returns as of December 2, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
