Tesla’s AI day
Tesla explained its progress toward full self-driving at an event on Thursday, which was primarily a recruiting effort for engineering talent. In addition, the company unveiled a new custom chip for training artificial intelligence networks, and CEO Elon Musk announced that the company was working on a humanoid robot prototype.
According to UBS analyst Patrick Hummel, who is neutral on Tesla, the event served its purpose of recruiting talent but did not change the timeline for full self-driving.
“Can we imagine any other [original equipment manufacturer] hosting a session about advances in autonomous driving, neural networks, and machine learning?” Obviously not. Is there anything in the event that has changed our minds about FSD adoption or monetization opportunities in the coming years? No, neither,” according to the UBS note.
In a note to clients, Goldman Sachs analyst Mark Delaney, who has a buy rating on the stock, said the event demonstrated that Tesla’s engineering talent and trajectory were on the right track, even though full self-driving remains a long way off.
“We believe the event demonstrated the breadth of Tesla’s engineering talent, the scope of the challenges to achieving full autonomy, and the coordination required of multiple Tesla teams. While Tesla (and the industry as a whole) has been slow to reach L4/5 autonomous driving, “we believe that Tesla’s vertical integration/breadth of talent/custom solutions have the potential to be key differentiators, particularly when viewed in combination,” the Goldman note said.
Wall Street analysts were skeptical of the new robot. Toni Sacconaghi, a bearish Bernstein analyst, said the event served as a reminder of Tesla’s potential but also raised red flags.
“The announcements are likely to reinforce bulls’ belief that Tesla is also a semiconductor, supercomputer, and artificial intelligence company with numerous incremental revenue streams. We are concerned about Tesla’s level of integration and breadth of focus, and see the bot, in particular, as a distraction,” according to the Bernstein note.
Tesla shares closed at around $673 per share on Thursday, down 4.6 percent year to date. However, the stock gained traction over the summer and is now up more than 14 percent in the last three months.
Here’s what other Wall Street publications had to say about AI Day.
Wells Fargo – Rating of equal weight
“While the Bot reveal is exciting, 2022 seems optimistic given Boston Dynamics’ years of development for similar technology. The excitement surrounding the Bot reveal will most likely provide a short-term boost to shares; however, we believe that the ramp of the Austin and Berlin plants, the NHTSA Autopilot investigation, and possible US EV credits will be more relevant mid-term drivers.”
Wedbush has an outperform rating.
“Unfortunately, as we have seen with robotaxis and other future sci-fi projects for Musk, we see this Tesla Bot as an absolute head scratcher that will further agitate investors at a time when the Street is showing growing concern about rising EV competition and Tesla’s safety issues.”
Roth Capital Partners has a rating of Neutral.
“We see this publicity event as an attempt to divert attention away from the substantial credible progress made by system developers such as Waymo, Cruise, and Uber, which are supported by a vibrant ecosystem of hardware, semiconductor, and software suppliers.”
Stocks to buy: semiconductor stocks
“Key discussions were primarily centered on the supply demand outlook, pricing trend, competition landscape, and the LTA [long term agreement] trend within the supply chain,” Goldman analysts led by Bruce Lu wrote in a research note dated Aug. 17.
The bank maintained its buy rating on United Microelectronics, a semiconductor foundry (or manufacturer), saying that “the company remains bullish on the overall demand outlook.” According to Goldman, the company’s management expects a gradual increase in revenue from automotive customers, with “strong” demand for some components, and the stock remains on the bank’s conviction list.
Vanguard, a provider of semiconductor foundry services, is also a buy for the bank. “The overall demand growth outlook will continue to outpace supply growth, allowing its UTR [utilization rate] to remain at very high levels well into 2022 and beyond,” the analysts predicted. “We maintain our Buy rating on Vanguard because we like the company’s solid execution and track record,” they add.
According to Goldman, integrated circuit maker Novatek Microelectronics will pass on cost increases to customers, and the company is seeing demand for large TV components and OLEDs (organic light emitting diodes) for smartphones. “Given our positive views on Novatek’s long-term structural growth and healthy earnings growth, we reiterate our Buy rating,” the analysts wrote.
Realtek, a fabless (or semiconductor design) company, is also a Goldman pick, and the company has reiterated its “strong” demand outlook, according to the bank. “Given our unchanged constructive views on Realtek’s mid-term growth and earnings quality with more server/networking/automotive projects,” the bank’s analysts wrote in an Aug. 18 research note.
According to Goldman’s analysts, MediaTek, another fabless company, will see “solid” sales driven by “strong” demand from the gaming and automotive sectors. “The medium to long-term trend remains intact as we expect addressable market expansion and product mix improvements,” they added, reinforcing their buy rating in a research note issued on August 18.
According to Goldman analysts in an Aug. 19 research note, semiconductor foundry TSMC expects “strong long term structural demand” in sectors such as 5G and automotive. “We maintain our constructive view on the industry’s underlying structural growth areas (such as 5G/AI), TSMC’s solid technological leadership and execution, an easing competitive landscape, and long-term shareholder returns,” the analysts wrote. Goldman has a buy rating on TSMC and it is still on the bank’s conviction list.
“When we look at the S&P500, for example, we believe that many industries are in jeopardy as a result of significant technological changes. “Energy is certainly a factor because of electric vehicles and the shift toward autonomous electric vehicles,” Ark Invest’s CEO and chief investment officer said in an interview with “TechCheck.”
“You can include automobiles and the auto supply chain. They are frantically attempting to enter this new world. It will be extremely difficult,” added Wood, a longtime Tesla supporter whose popularity skyrocketed last year as a result of the success of several of her firm’s exchange-traded funds, most notably its flagship ARK Innovation ETF. In 2020, the fund increased by nearly 150 percent.
Wood describes her investment style as one centered on “disruptive innovation.” Autonomous technology and robots, the so-called genomic revolution, next-generation internet, and financial technology are all areas of emphasis for Ark.
“We’ve dedicated our research and investment to innovation because we believe there has never been a more provocative time in history for innovation,” Wood said.
Retail is another industry that Wood believes is still vulnerable to significant upheaval.
“When you think of retail, I’m sure many investors think, ‘OK, we’ve seen the destruction there.’ We believe it has only just begun in some ways because online retail sales in the United States have only reached 20% of total sales,” said Wood, whose ARK Innovation ETF includes a 4.15 percent weighting in Shopify, a Canadian tech firm that companies use to host their e-commerce operations.
“When a trend moves from 10% to 20%, it usually indicates that it is entering overdrive. “We believe that a much higher percentage of sales will be made online,” Wood predicted.
Traditional financial institutions, according to Wood, who founded Ark in 2014, must also be on the lookout. She previously worked as AllianceBernstein’s chief investment officer for thematic portfolios.
“I would say that digital wallets and DeFi [are] a big problem and a big challenge for financial services,” she said.
DeFi, or decentralized finance, applications use smart contracts on blockchains to replicate traditional financial service offerings such as banking. The Ethereum blockchain is widely regarded as the market leader in this nascent area of cryptocurrency technology. Wood described it as “removing middlemen from the financial services sector,” claiming that it creates a plethora of “new greenfield opportunities for other companies.”
“This entire space is at the forefront of innovation like we’ve never seen before. “The internet only gives us a hint,” Wood explained.
Shall you buy Chinese tech stocks?
“A stock in the [technology, media, and telecom] sector across China that you probably still want to be owning and looking at… albeit from a nimble perspective, would be Tencent,” Andrew Maynard, managing director and head of equities at China Renaissance, said.
China Renaissance maintained its “buy” rating on Tencent on Thursday, implying that the Chinese internet giant will outperform the Hong Kong benchmark index, with a price target of 725 Hong Kong dollars (about $93.04).
Tencent reported a better-than-expected 29 percent increase in second-quarter profit on Wednesday. During an earnings call, Tencent’s president warned of additional regulations for China’s internet sector, but expressed confidence that the company would be able to comply.
For months, Chinese regulators have been cracking down on the country’s technology titans, enacting new rules ranging from antitrust to data regulation.
Tencent’s stock has not been spared from the subsequent market devastation as investors flee the sector. As of Thursday’s close, its Hong Kong shares were down more than 25% for the year.
According to China Renaissance’s Maynard, uncertainty and volatility in the sector will persist in the short term.
“The regulatory pressures alone are extremely difficult to manage,” he explained.
Meanwhile, investment bank Jefferies sees Tencent’s stock rising in value, but with a lower price target of 683 Hong Kong dollars ($87.65).
“Tencent’s evolution from consumer to industry internet, while retaining its solid foundation in gaming and growing its ad market share, in our opinion, paves the way for future success,” Jefferies analysts wrote in a note on Thursday.
“We expect Tencent to maintain its leading position in the entertainment sector, with continued leadership in online games and diversified business models,” they said, adding that the company’s diversified model “protects” it from macro-headwinds.
“Because of the social engineering or reengineering that appears to be taking place in China,… the valuations associated with these companies are damaged, and we don’t think they’re going to go up anytime soon,” Ark Invest’s Wood said.
“Nationalizing an industry like online education,… that will stick with us for a long time.” “It could happen in any industry,” she adds.
Beijing has tightened regulations in a number of industries, including technology, education, and gaming. China has issued a ban that prohibits companies that teach school curriculums from profiting, raising capital, or going public.
The government is cracking down on the influx of Chinese listings in the United States, as well as tightening restrictions on cross-border data flows and security.
Didi’s stock has dropped roughly 33% in the last month after Beijing launched a cybersecurity investigation and suspended new user registrations.
Wood expressed concern that increased regulatory scrutiny on industries employing cutting-edge technology would harm the country’s long-term economic growth.
“China aspires to victory. They will only win if they embrace innovation as aggressively as, if not more aggressively than, any other country. And they are attempting to do so, but I am concerned that becoming more insular will slow their rate of innovation,” she said.
The Tesla bull noted that the electric vehicle maker has been extra cautious about doing business in China, which is consistent with the behavior of other American companies in the country.
“We can tell by looking at what Tesla is doing in China that it is paying close attention to what the government is saying. “Safety is paramount, and I believe it is taking more precautions than would otherwise have been the case,” she explained.
Tesla is one of the top holdings in the ARK Innovation ETF.
BJ is the top stock of the month according to JPMorgan
Analyst Christopher Horvers reiterated the stock’s overweight rating and added it to the firm’s analyst focus list. Horvers stated in a client note on Friday that the company’s strong second-quarter report, which exceeded Wall Street estimates on both the top and bottom lines, should add fuel to the bull case for its shares.
“We expect the stock to continue to re-rate as BJ is proving its cred by demonstrating it is retaining and acquiring members…, while unit growth is accelerating,” the note said.
BJ’s stock has increased 44 percent this year. JPMorgan increased its price target for the stock by $2 per share to $63, representing an additional 16 percent upside.
According to the note, the success of the retailer’s membership program should help its stock trade more like high-multiple peers like Costco rather than pure grocery stores.
“BJ is in the process of separating itself from the association with grocers in the same way that TGT separated itself from department stores in the 2017-20 time frame,” according to the note.
JPMorgan also removed Ulta Cosmetics from its analyst focus list on Friday.