Two big tech earnings came out this week. Tesla reported earnings on Tuesday after market close. Revenue was $25.5B vs. $24.77B expected. EPS was $0.52 vs. $0.62 expected. Revenue only increased 2% YoY while automotive revenue fell 7% YoY. EBITA margin shrank 426bp YoY. This is a far cry from their 50% annual growth in FY2022. Tesla stock tanked 10+% after the report. Tesla’s valuation is always narrative based. But I don’t see how the company could sustain the current valuation with 2% annual growth and 50+ PE ratio. Elon is hyping all the AI stuff but I believe the AI hype narrative is beginning to cool down. All the cool AI stuff is great but it will take a few years for the AI to really be integrated into our everyday life. It’s like the internet. Chances are it will be a pretty bumpy road from the investment perspective. It’s also unclear who will be the real winner in the end. Google wasn’t started until 1998 and didn’t really get popular until early 2000s but Netscape browser was out in late 1994. When the internet bubble burst in 2000, Google was still a tiny company. It’s possible the Google of the AI age is not even born yet. As an investor, I am personally very cautious on chasing the latest AI trend. It’s entirely possible that two years from now, Nvidia will experience what Tesla is going through right now and many of the current hot AI companies will end up being Webvan or Excite@Home of our time.
Google also reported earnings on Tuesday after market close. Revenue was $84.74B vs. $84.19B expected. EPS was $1.89 vs. $1.84 expected. Google Cloud Revenue was $10.35B vs. $10.2B expected. YouTube revenue was $8.66B vs. $8.93B expected. Overall, it was a pretty good earnings with 14% top line growth and strong EPS. Google is also expanding its successful Waymo driverless taxi from San Francisco to Phoenix. Despite the impressive results, Google stock tanked 8+%. I think investors are just very nervous about its search dominance and the company seems to still lag behind OpenAI on AI innovations despite the company’s immense resources. OpenAI did announce SearchGPT yesterday and companies like Perplexity AI do sometimes provide better search results than Google’s often SEO-plagued Ad-filled pages. Google stock is not expensive if we simply look at growth rate and PE-ratios but the company is facing enormous challenges from many nimble competitors who attempt to take search market share from Google through the new AI interface. I believe Google is set to lose some market share and how the Google bureaucracy deals with it will determine how well they survive in the new era.
