Despite Tesla's stunning Q3 performance report released last week and a surge of approximately 22% on Thursday, achieving its best single day performance in 11 years. However, as the market returns to rationality, Wall Street is evaluating whether the stock should be included in the "Big Seven" of technology.
The members of the "Big Seven" technology giants currently include NVIDIA, Apple, Google's parent company Alphabet, Amazon, Meta, Microsoft, and Tesla. They have been the dominant force in the US stock market for a long time.
With the arrival of Q3 earnings season, the "Big Seven" have once again become potential key driving forces. According to FactSet data, the "Tech 7" are expected to lead the market with a year-on-year growth rate of 18.1% in the third quarter, with four stocks - Nvidia, Alphabet, Amazon, and Meta - expected to be among the top 10 stocks contributing the most to the earnings growth of the S&P 500 index.
Although Tesla's profits have rebounded in the third quarter, concerns continue and the debate surrounding Tesla is once again on the rise. Tesla's third quarter profit jumped 17%, achieving a dramatic reversal after two consecutive quarters of decline. But this seems far from enough for Wall Street.
Wall Street strategists believe that due to over hyped fundamentals, the stock still carries the risk of falling behind other large tech stocks.
Jay Woods, Chief Global Strategist at Freedom Capital Markets, an investment banking division of Prime Executions, Inc., likened Tesla to Bitcoin, implying that Tesla's stock trading is more based on "hopes and dreams" rather than fundamentals.
He warned that "Tesla had a brilliant moment... In my opinion, it is more like Cisco or Intel during the Internet foam, and now we are turning to other things."
Although CEO Elon Musk often categorizes Tesla as a technology company, the company's bets on artificial intelligence and robotics may take years to pay off. At the same time, Tesla must rely on improving its core automotive business - in stark contrast to the situation of other members of the "Big Seven" technology giants.
Dan Morgan, a long-term investor in technology stocks, said, "I have been in the technology industry since 1990, and I still remember the 'Four Horsemen'... We did not include automotive stocks in the combination of Cisco, Intel, Dell, and Microsoft
Tesla's recent poor performance and high valuation have further weakened its position among the Big Seven. The data shows that the company's expected P/E ratio is close to 73 times, far exceeding other members of the "Big Seven" technology giants.
In addition, as of last Friday afternoon, only over 40% of analysts studying Tesla rated the stock as a "buy," making Tesla the least favored stock among the seven giants by analysts.
Netflix's Rise
As for Tesla's replacement, Wall Street seems to have reached a consensus that Netflix has become a strong competitor.
Ayako Yoshioka, an analyst at Wealth Enhancement Group, pointed out that Netflix is "the most meaningful" as the company's stock price has recently hit a historic high driven by strong earnings and robust guidance.
Since the beginning of this year, the stock has risen by 61.08%, second only to Nvidia and Meta.
Jesus Alvarado Martinez of Portfolio Wealth Advisors also stated that becoming a member of the Big Seven means becoming a "cash flow machine," and Netflix "meets this requirement.
He said, "Netflix's free cash flow has been continuously growing... considerable profits, considerable free cash flow, and considerable number of users
Since the outbreak of the epidemic, the company's free cash flow has steadily increased, growing to $2.19 billion in the third quarter, higher than the $1.89 billion in the same period last year. In 2023, its total free cash flow was $6.93 billion, compared to $1.62 billion in 2022.
Bank of America analyst Jessica Reif Ehrlich also believes that Netflix's growing free cash flow is the "catalyst" for the stock's rise, and expects its free cash flow to rise to $8.9 billion in 2025 and $11.16 billion in 2026.
Data shows that as of last Friday, analysts held an overwhelmingly optimistic attitude towards Netflix, with 87% of analysts rating it as a buy and only 3% recommending a sell.