Day: October 7, 2024

With proper insight and timing, an investor could have profited mightily from electric vehicle (EV) sector in recent years. For instance, had you invested $1,000 into Tesla (NASDAQ: TSLA) when its shares went public in June 2010, you’d have more than $156,000 today. Nowadays, many investors are looking for the next Tesla. If that’s your goal, pay attention to the two companies on this list.

Looking for the next Tesla? Here it is.

While many investors are looking for the next Tesla, it’s fair to mention that it’s still possible to invest in the original Tesla today. The company has a gargantuan $850 billion market value, but that shouldn’t stop you from jumping in.

There are two reasons to believe the stock still has plenty of long-term upside. First, shares are cheaper today than they have been in years. That’s due to a massive dip in revenue growth. Earlier this year, Tesla actually experienced a decline in companywide revenue. As a result, Tesla’s price-to-sales ratio has fallen from the mid 20s to under 10. To be sure, that’s still expensive, but it’s a bargain relative to the company’s history.

A cheap valuation on paper, however, is only attractive if you believe the company is about to turn the corner. Take note of the chart below. Tesla has experienced massive dips in revenue growth before, with its valuation usually following suit. A huge reason that things turned around was a jump in electric vehicle sales, as well as the introduction of new models like the Model 3 and Model Y — both of which resulted in sales spikes that persisted for several years.

According to Bloomberg, “Electric vehicle deliveries have been essentially flat since early 2023, and that’s not likely to change anytime soon.” But fortunately, Tesla has something else up its sleeve. “Tesla’s robotaxi event next week,” Bloomberg reports, “will see Musk lean even harder into the narrative of self-driving vehicles, artificial intelligence and robots.”

Am I buying into Tesla’s robotaxi hype? Not just yet. But Musk has dreamed big before. Sometimes he delivers, and sometimes he doesn’t, but it’s often a smart move to back the horse with a winning track record. And despite the company’s recent missteps, Tesla is still the company to bet on if you’re bullish on EV stocks in general. But if you’re looking for the most upside potential possible, the next stock on this list is for you.

This EV stock has huge growth potential

While Tesla is still a great stock to bet on for those bullish on the EV space, its shares are still expensive and the company’s biggest days of growth are likely behind it. Rivian Automotive (NASDAQ: RIVN) is in the opposite situation. Its biggest days of growth are very much ahead of it, and shares aren’t as expensive as you’d think.

Earlier this year, for example, Rivian was posting revenue growth rates above 80% year over year. Those growth rates came at a time when Tesla’s revenue base was actually shrinking. And while Rivian’s growth rates have converged with Tesla’s more recently, most of that has come from industry pressure and the maturation of its models.

This year, EV sales forecasts have been repeatedly trimmed industrywide, and Rivian’s two existing models, the R1T and R1S, have already been on the market for several years. But that’s all about to change.

Earlier this year, Rivian announced three new models: the R2, R3, and R3X. All are expected to be priced under $50,000 — the magic price point that EV makers need to sell beneath in order to market to mass audiences. Also, while EV sales in general have slowed this year, most long-term forecasts still predict massive growth in the years to come. Passenger EV sales are expected to surpass 30 million by 2027, according to a recent report from Bloomberg. And this figure should grow further to 73 million per year by 2040.

Rivian’s new models aren’t expected to hit the streets until 2026. That gives plenty of time for market conditions to improve as most forecasts predict. And in the meantime, investors can lock in a market capitalization of just $11 billion. That results in a price-to-sales (P/S) ratio of only 2.1 for Rivian versus Tesla’s premium P/S multiple of 8.8.

You’ll need to be comfortable with volatility as Rivian attempts to ramp up its manufacturing capabilities, as well as market new models to a consumer base still skeptical of EVs. But if you truly want to invest in the next Tesla, Rivian has all the characteristics you’d want to see.

Should you invest $1,000 in Tesla right now?

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The massive demand for energy as Big Tech races to build its AI infrastructure has been a tailwind for GE Vernova (GEV), the power equipment maker that spun out of iconic GE earlier this year.

Shares of the Cambridge, Mass.-based company have been hovering near all-time highs, along with the broader S&P 500 Industrial ETF (XLI), as investors look to play off the electrification and artificial intelligence theme led by AI chip heavyweight Nvidia (NVDA).

“[Vernova] seems to be caught up in the broader trade of AI and power demand,” Daniel Rich, analyst at CFRA, told Yahoo Finance. The firm has a Buy rating and a price target of $230 on the stock.

Much of Wall Street’s bullishness stems from expectations of power demand growth stemming from Big Tech’s commitment to record infrastructure technology investments.

Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta (META) are expected to spend a combined $200 billion this year on cloud and AI investments, including building and maintaining data centers.

Power demand from infrastructure technologies in the US is expected to more than double by 2030 thanks to use of AI, according to consulting firm McKinsey & Co.

“Because of how much more power we’re going to need —if the projections are accurate to power data centers — to power AI applications, Vernova is definitely a winner,” he added.

One Wall Street analyst dubbed the $72 billion company the “supermarket” for the electric power industry — from natural gas turbines used to generate electricity to servicing of power plants, modernizing electric grids, and building wind turbines.

“This company does everything,” Raymond James managing director Pavel Molchanov told Yahoo Finance in an interview this week.

“Because the buildout of electric power infrastructure is an all-of-the-above story, that means all of these solutions are going to be needed,” he added.

The analyst notes Vernova’s reach is global, with roughly 30% of its revenue stemming from the US. Some of its big competitors, like Siemens Energy, Schneider Electric, and ABB, are based abroad.

Vernova expects to deliver 70 to 80 heavy-duty gas turbines per year in 2026, up from roughly 55 for the last few years. Servicing those units is also expected to grow substantially.

“We’re seeing increasing demand for power generation, driven by manufacturing growth, industrial electrification, EVs, and emerging data center needs,” Vernova CEO Scott Strazik said during the company’s latest earnings call over the summer.

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The recent deal between software giant Microsoft and nuclear power provider Constellation Energy (CEG) to restart a reactor at Pennsylvania’s Three Mile Island is one recent example of the growing energy demand among Big Tech.

The partnership has made Morgan Stanley analysts more bullish on the prospects of gas-powered plants adjacent to data centers.

“We believe a co-located data center and gas-fired power plant utilizing GEV’s gas-turbine equipment could be announced in 2025,” Morgan Stanley analyst Andrew Percoco wrote in a note last week.

The analyst reiterated an Overweight rating and increased his bull case scenario price target on the stock to $397 from $371.

Vernova stock is up more than 100% since its spinoff, compared to the S&P 500’s (^GSPC) 21% year-to-date gain. That’s despite negative headlines in the company’s most challenged unit — its wind turbines — after incidents of blades breaking off in key offshore projects.

Molchanov from Raymond James cautions the strong run-up means there could be little room to run, though.

“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a little bit like certain other AI-related companies that people are familiar with, well, that’s not a coincidence,” said Molchanov.

Calling the AI-fueled rally “overstretched,” the analyst and his team downgraded the stock from Outperform to Market Perform based on valuation. Much of the enthusiasm over AI is already baked into Vernova’s share price, he said.

“The bottom line is that we think the stock could use a period of consolidation after its sentiment-driven gains, and we look forward to revisiting our rating if and when the trade becomes less crowded,” he said.

The stock has 19 Buy, six Hold, and two Sell analyst recommendations.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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(Bloomberg) — European equities erased gains and US equity futures dipped as tension in the Middle East tempered optimism about the US economy following Friday’s stronger-than-expected jobs data.

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The Stoxx 600 index was little changed. Treasury 10-year yields rose to hover just shy of the key 4% threshold as investors trimmed bets on big Federal Reserve interest-rate cuts. The euro, pound and most Asian currencies weakened against the dollar. Crude oil drifted lower.

Trading is being shaped by signs of resilience in the world’s largest economy after employers added the most US jobs in six months in September. Wagers on a “no landing” scenario — where US growth momentum remains intact and inflation reignites — stand to boost the greenback while triggering a drop in haven assets.

Still, investors are wary about rising geo-political risks as the world awaits Israel’s potential response to Iran’s missile attack last week. Israel bombed Hamas targets across Gaza on Monday to prevent what it said was an “immediate” threat of rocket fire the group was planning to mark its devastating attack a year ago.

The US jobs report Friday pointed to an unexpectedly strong employment situation, which leaves a soft landing still on the cards, Michael Brown, a senior research strategist at Pepperstone, wrote in a note.

“Sentiment and conviction are still somewhat capped by ongoing tensions in the Middle East,” Brown added. “So long as geopolitical tensions continue to simmer, conviction among equity bulls may be a little lower than usual, with many preferring to take trades over a shorter time horizon.”

US futures were pointing to a lower open, after the S&P 500 Index jumped 0.9% on Friday thanks to the stronger-than-expected jobs report.

Goldman Sachs Group Inc. economists have cut the probability for a US recession to the long-term average of 15% after the strong payrolls report on Friday, and now expect that the Fed will cut rates 25 basis points in November.

On the US agenda this week are minutes from the Fed’s September policy meeting, as well as consumer-price data. US inflation probably moderated at the end of the third quarter, which suggests policymakers will opt for a smaller interest-rate cut when they next meet on Nov. 6-7.

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Here are some key events this week:

• Euro-area finance ministers meet in Luxembourg on Monday. ECB President Christine Lagarde will participate

• Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem and Fed Board member Michele Bowman speak at different events on Monday as investors listen for any clues to policymakers’ thinking ahead of next month’s meeting

• Brazil and Mexico publish CPI data, New Zealand, Israel and India hold interest rate decisions

• US CPI for September, the final inflation print before the presidential election, is due Thursday

• President Biden embarks on a trip to Germany and Angola, through Oct. 15, his first trip abroad since withdrawing from the presidential race, on Thursday

• New York Fed President John Williams gives keynote remarks at Binghamton University in New York. Richmond Fed President Thomas Barkin speaks in a fireside chat on the economic outlook on Thursday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 8:18 a.m. London time

• S&P 500 futures fell 0.3%

• Nasdaq 100 futures fell 0.3%

• Futures on the Dow Jones Industrial Average fell 0.2%

• The MSCI Asia Pacific Index rose 0.9%

• The MSCI Emerging Markets Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0966

• The Japanese yen rose 0.2% to 148.33 per dollar

• The offshore yuan rose 0.3% to 7.0773 per dollar

• The British pound was little changed at $1.3115

Cryptocurrencies

• Bitcoin rose 1.5% to $63,551.21

• Ether rose 1.9% to $2,486.09

Bonds

• The yield on 10-year Treasuries advanced two basis points to 3.99%

• Germany’s 10-year yield advanced three basis points to 2.24%

• Britain’s 10-year yield advanced four basis points to 4.17%

Commodities

• Brent crude was little changed

• Spot gold fell 0.3% to $2,645.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess and Tania Chen.

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©2024 Bloomberg L.P.

(Bloomberg) — Top Chinese chipmaker Semiconductor Manufacturing International Corp. led a $13 billion sector rally, after investors bet that Beijing will declare more policy or financial support for an industry central to its geopolitical ambitions.

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Shares of SMIC, which Washington has blacklisted over allegations it aids China’s military, climbed as much as 28% Monday to their highest in four years. That took its gain since Thursday’s close to 65%, or roughly $10.7 billion of market value at the peak. Smaller competitors Hua Hong Semiconductor Ltd. and Shanghai Fudan Microelectronics Group Co. also managed a combined gain of more than $2 billion over the period.

The sector rally mirrored a broad market revival since late September, when pledges of policy support helped reinvigorate confidence in the world’s No. 2 economy. Many investors expect Beijing — as it tries to jumpstart the property and financial sector — to also extend a helping hand to semiconductors. Chips, the basic building block of technologies from AI to EVs, are at the heart of a longer-term conflict with the US for geopolitical supremacy.

Investors are watching for additional policy measures after Chinese leaders signaled their intent to reverse the nation’s growth slowdown. Just before a week-long holiday, the government unleashed stimulus measures from interest rate cuts to a pledge of as much as $340 billion to support the stock market. China’s top economic planner is slated to brief the public Tuesday on a package of policies aimed at boosting economic growth.

Hong Kong-listed shares have for a week been the only way to trade Chinese chip firms, because mainland markets remain closed until Tuesday. Representatives of SMIC didn’t respond to a request for comment outside of normal business hours.

China, which is years behind in chipmaking versus its Western rivals, is pouring enormous amounts of capital into the sector. It’s on track to spend more than $142 billion, the Washington-based Semiconductor Industry Association estimated in mid-2024. As part of that effort, the government has been raising another $27 billion for what’s known as the Big Fund to oversee state investments in scores of companies, including local chipmaking champions SMIC and Huawei Technologies Co.

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Beijing and local governments don’t disclose overall semiconductor funding, though certain companies reveal some of the subsidies they get. Estimates vary widely because money comes from state-backed funds, local government financing and an array of incentives and tax breaks.

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