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If you buy into the idea that battery-electric vehicles will eventually take over from internal combustion vehicles, Tesla’s valuation can begin to make sense.
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Tesla, Amazon, and Nvidia stocks may not be overpriced, according to new analysis.
According to ValuAnalysis, a London-based fund manager and equity investment boutique, investors tend to price high-growth companies at a discount, and these technology stock standouts have incredible potential for growth.
The ValuAnalysis fund holds shares in both Nvidia and Amazon, which make up a combined 4% of its portfolio. The fund doesn’t currently hold Tesla.
Tesla and the coming vehicle revolution
If you buy into the idea that battery-electric vehicles will eventually take over from internal combustion vehicles, Tesla’s TSLA, +3.28% high price can begin to make sense.
Also: Tesla gets big boost over plans for first European factory
The ValuAnalysis report suggests that, based on a conservative projection of its electric-vehicle sales in five years, Tesla is currently trading at a more reasonable price considering the cash flow the company could expect in 2025.
“There’s nothing extraordinary in the assumptions that are hidden in the price of Tesla shares,” Pascal Costantini, the author of the ValuAnalysis report, told MarketWatch.
“They could still be wrong, but they are not crazy.”
Amazon’s global platform
Amazon is the largest and most established of the companies that ValuAnalysis profiled.
It says the company is set to grow more because of the “platform effect” that its global popularity creates. Any marginal benefit that Amazon AMZN, -2.32% can offer consumers is multiplied from its instant global reach.
Plus: This Amazon rival’s stock soared more than 50% in its first day of trading
The ValuAnalysis researchers believe Amazon isn’t overpriced because it reliably generates large amounts of cash flow, and its chief executive, Jeff Bezos, is obsessed with innovation.
Nvidia’s dominance in future tech
ValuAnalysis argues that Nvidia NVDA, -1.07% holds a dominant position in fields of the chip industry that could explode with future technology, like artificial intelligence and autonomous vehicles.
Costantini said that if Nvidia’s acquisition of Arm goes through, this will give the company a huge boost.
More on that: Pressure grows for U.K. to intervene in Nvidia’s $40 billion Arm takeover
“They clearly have an advantage that is so big now that it’s difficult to see how anyone can catch up with them,” Costanini said. “If I were Intel INTC, -0.52%, I’d be really worried.”
Could there still be a bubble?
Yes. Other analysts argue that conditions created by the coronavirus pandemic and central bank stimulus have sent stocks into a frenzy this year, and that there’s a bubble driven by tech companies. Some people connect what’s happening today with the dot-com bubble of 20 years ago.
But Costantini makes the case that the recent surge in tech stocks is markedly different. He’s staking his reputation on it.
Read a more comprehensive report of the ValuAnalysis research on Barron’s.
