Is Tesla’s Reign as a Market Darling Coming to an End?
A recent slump in Tesla’s share price, coupled with a warning of slower deliveries, is leading some on Wall Street to question if the electric vehicle giant truly deserves its status among the “Magnificent 7.” Billionaire investor Leon Cooperman, CEO of the Omega Family Office, believes that Tesla’s fall from grace might mean it is time to consider alternative companies. With Tesla’s stock down 26% in just five weeks, a disappointing earnings report and a warning of stagnant vehicle volume growth, analysts have started to lower their ratings and price targets on the stock. Additionally, Tesla’s reduced market capitalization has resulted in a drop in its weighting on the S&P 500 list. Meanwhile, other companies, such as Berkshire Hathaway, Broadcom, and Eli Lilly, have seen their market cap and earnings surpass that of Tesla’s.
Berkshire Hathaway, Broadcom, and Eli Lilly Outshine Tesla
An analysis conducted by Strategas Securities revealed that there are now 29 companies that contribute more to S&P 500 earnings than Tesla. Berkshire Hathaway, Broadcom, and Eli Lilly emerged as the top contenders. Berkshire Hathaway had flirted with the top seven spots last year, but it is Broadcom and Eli Lilly that have been making steady progress, boasting both larger market cap weighting and earnings contributions. In fact, Broadcom’s net income contribution is merely a 0.1% difference from its market cap weight, indicating the potential for further multiple expansion. Berkshire Hathaway, led by legendary investor Warren Buffett, has historically outperformed the market during periods of volatility, while both Eli Lilly and Broadcom have seen considerable gains in their respective shares this year.
Eli Lilly’s Stellar Performance Bolstered by Product Launches
Eli Lilly’s impressive quarterly results, announced on Tuesday, exceeded expectations. The company’s success can be attributed to the strong debut of its weight loss drug, Zepbound, and increased prices for its blockbuster diabetes treatment, Mounjaro. This success has propelled Eli Lilly’s stock to soar nearly 20% this year, attracting investor attention and contributing to its growing market cap and earnings contribution.
Broadcom Leading the Way in AI Semiconductor Market
Broadcom, another potential replacement for Tesla, experienced significant growth last year, largely due to its involvement in artificial intelligence (AI) initiatives. As one of the leading semiconductor suppliers in the global AI market, with estimated revenues of over $8 billion for 2024, Broadcom is positioning itself as a powerhouse in technology infrastructure. The stock has already gained close to 10% this year, with JPMorgan resuming coverage and labeling it a technology infrastructure leader with a focus on AI.
Tesla’s Uncertain Future
While Tesla has been an undeniably disruptive force in the electric vehicle market, recent struggles and the rise of alternative companies have raised questions about its future. The declining stock price, missed earnings expectations, and warnings of stagnant growth have dented Tesla’s reputation. As other companies, such as Berkshire Hathaway, Broadcom, and Eli Lilly, continue to surpass Tesla’s earnings contributions and market cap weight, the electric vehicle giant faces increasing competition for its position in the “Magnificent 7” and is at risk of being replaced by these rising stars.
Conclusion
Tesla’s reign as a market darling may be coming to an end, as concerns about its stock performance and earnings growth overshadow its previous success. With alternative companies like Berkshire Hathaway, Broadcom, and Eli Lilly showing impressive market cap weight and earnings contributions, some on Wall Street are suggesting that Tesla’s place among the “Magnificent 7” is no longer justified. As the electric vehicle market becomes more competitive and other industries propel their growth through innovative products and technologies, Tesla must prove it can maintain its position as a market leader.
Analyst comment
Negative news for Tesla. The slump in their stock price, slower deliveries, and warnings of stagnant growth have analysts lowering ratings and price targets. Other companies like Berkshire Hathaway, Broadcom, and Eli Lilly are outshining Tesla in market cap and earnings, suggesting Tesla’s reign may be coming to an end.
