Trump’s Election Boosts Financial Markets and AI Stocks
Donald Trump’s election has altered financial markets dramatically. Following his win, stocks surged across the board, especially in the financial and energy sectors. However, real estate lagged behind due to its vulnerability to interest rates, and consumer staples faced potential tariffs.
Bond yields saw an increase, indicating that investors believe interest rates will remain high. This is largely attributed to anticipated tax cuts and economic stimulus, alongside the effects of tariffs and rising deficits.
The tech sector has emerged as a major beneficiary, particularly with cyclical stocks set to thrive under a more lenient regulatory environment expected from the Trump administration. As of November 14, the Nasdaq-100 index, which features notable companies like the “Magnificent Seven,” rose by 3.3%.
The Trump administration’s stance on artificial intelligence remains somewhat vague. Nonetheless, specific AI stocks have gained significant attention since his electoral victory. Let’s examine a few standout performers.
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1. Tesla (NASDAQ: TSLA)
Since Trump’s election, no AI stock has attracted as much interest as Tesla. CEO Elon Musk has openly supported Trump, potentially giving him leverage to gain favorable treatment from the administration.
Investors seem optimistic about Tesla’s prospects, with the stock rising 24% since the election. At one point, it even reached over a 40% increase. Wall Street anticipates that the Trump administration might ease restrictions on autonomous vehicle regulations, helping Tesla deploy its Cybercabs more rapidly. Currently, federal guidelines limit companies to 2,500 driverless vehicles each year, constraining Tesla’s growth plans.
Despite these opportunities, challenges lie ahead for Tesla. The Trump administration plans to discontinue the $7,500 electric vehicle (EV) tax credit, which could steer buyers toward gas-powered cars. Although Musk has minimized concerns over this change, he has previously highlighted how high rates affect Tesla’s sales, indicating the brand’s vulnerability to pricing pressures.
Musk’s relationship with Trump might alienate some customers who prefer to distance themselves from political figures. Moreover, Tesla’s stock is seen as expensive with a price-to-earnings ratio above 100, casting doubt on its long-term growth. Investors may prefer to observe from the sidelines at this stage.
2. Block (NYSE: SQ)
Block focuses on fintech rather than AI, but it has prioritized integrating AI into its operations. This includes leveraging machine learning for customer service and marketing efforts.
Block allows transactions in cryptocurrency via its Cash App, and the Trump administration’s favorable stance towards crypto could play in its favor. Financial stocks generally rallied following the election, reflecting market confidence in a more business-friendly environment. Block’s active acquisition strategy has included notable purchases like Afterpay and Tidal.
After the election, Block’s stock surged by 7.3%, accumulating a total of 15.3% growth, albeit influenced by its third-quarter earnings that slightly missed estimates. Block indicated plans to reduce investments in Tidal, but it will invest further in Bitcoin mining and its Bitcoin wallet, Bitkey.
Overall, the company aligns itself with the Trump administration’s focus on crypto and deregulation. With continuous gross profit growth projected to exceed $1 billion in operating income this year, Block appears poised to thrive if investor sentiments regarding the new administration manifest positively.
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Jeremy Bowman does not hold any positions in the stocks mentioned. The Motley Fool recommends Bitcoin, Block, and Tesla, adhering to a strict disclosure policy.
The views and opinions expressed herein are the author’s and do not necessarily reflect those of Nasdaq, Inc.
