Hedge Funds Target Tesla While Divesting Amazon in Q3

Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) have proven to be lucrative long-term investments. Nonetheless, several hedge fund magnates shifted their strategies in the third quarter by purchasing Tesla and selling Amazon:

• Louis Bacon of Moore Capital Management acquired 25,000 shares of Tesla, marking a 19% increase in his position, while simultaneously selling 616,475 shares of Amazon, a significant 76% reduction.
• Israel Englander from Millennium Management bought 225,760 shares of Tesla, boosting his position by 51%, and sold 7.9 million shares of Amazon, reducing his stake by 87%.
• Dan Loeb of Third Point entered a new position by purchasing 400,000 shares of Tesla and sold 1.4 million shares of Amazon, bringing his holding down by 27%.
• Chris Rokos at Rokos Capital Management began a new position with 100,000 shares of Tesla and reduced his Amazon holdings by 39% after selling 755,165 shares.

It is crucial to remember that the trades mentioned above were made in the third quarter, which ended over three months ago. Updates for the fourth quarter will not be available until mid-February. Let’s take a current look at Tesla and Amazon now.

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Tesla: The Stock Billionaires Are Buying

Tesla’s stock experienced a notable drop on January 2, as the company revealed 495,570 fourth-quarter deliveries, falling approximately 10,000 units short of expectations. However, the stock rebounded the following day thanks to positive sales reports from China and an upgrade from Canaccord. Despite leading the electric car market through November, Tesla’s market share has decreased in the U.S., Europe, and China, its three primary markets.

A few key developments could boost Tesla’s earnings estimates and potentially raise its stock price. The company plans to launch a vehicle priced below $30,000, reportedly named the Model Q, set for the first half of 2025. Additionally, Tesla is excited about a claimed 1,000-fold enhancement of its full self-driving (FSD) software this year, with plans to introduce an unsupervised version in California and Texas next year.

Furthermore, Tesla aims to roll out an autonomous ride-sharing service in California and Texas by 2025, with possibilities for expansion into other states, according to CEO Elon Musk. Musk estimates that robotaxis could elevate Tesla’s gross margin to 70% or more; in contrast, its gross margin was approximately 20% in the latest quarter.

Wall Street projects a 26% increase in Tesla’s adjusted earnings over the next four quarters. This raises questions about its current valuation of 164 times adjusted earnings, which many deem excessively high. Yet some analysts remain optimistic. Dan Ives at Wedbush stated on November 29, “Today, I view Tesla as the most undervalued AI name on the market.”

Personally, I suspect hedge funds acquiring Tesla shares in the third quarter were betting on Donald Trump’s presidential candidacy. If many sold their positions in the fourth quarter, it would not be surprising, especially since Tesla’s stock surged after the election. Nonetheless, investors who believe in Tesla’s potential to transform transportation should consider maintaining a long-term position.

Amazon: The Stock Billionaires Are Selling

Amazon thrives on three core growth engines: e-commerce, digital advertising, and cloud services. The company holds strong positions in these markets and leverages artificial intelligence (AI) to enhance revenue and efficiency across all segments.

As the most visited online marketplace globally, Amazon supports merchants with its extensive logistics network. Using machine learning models fueled by shopper data, Amazon enhances product recommendations, which boosts sales and optimizes inventory management and delivery logistics.

In the advertising sector, Amazon ranks as the third-largest ad tech company by sales. Its rapid growth may see it surpass Meta Platforms for the second position before 2030, according to eMarketer. Similarly, machine learning models use marketplace data to help brands target their advertising, while generative AI aids in creating media content.

Amazon Web Services (AWS), the largest public cloud provider by revenue, holds a market share of 31%, closely trailing behind the combined 33% held by Microsoft and Alphabet. CEO Andy Jassy stated that AWS has introduced almost twice as many new machine learning and generative AI features as its nearest competitors combined in the past 18 months.

Wall Street expects Amazon’s adjusted earnings to grow by 26% in the next four quarters. This makes its current valuation of 46 times adjusted earnings appear reasonable. As such, hedge fund managers who sold Amazon in Q3 might have made a miscalculation. The stock is now priced at $219 per share, which is 10% higher than its third-quarter peak of $200 and 36% above its lowest point of $161 during that quarter.

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Randi Zuckerberg, a former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also serves on the board. John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is another board member. Trevor Jennewine holds positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Tesla. The Motley Fool adheres to a disclosure policy.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.