The last week or so we have been seeing hedge funds rotating out of tech and into small caps, with Russell 2000 goes from flat for the year to up over 10% whereas the Nasdaq got hammered. GOOGLE, who released earnings on Tuesday, beat top and bottom line, but the stock got crushed. There are worries about their AI spending in the upcoming quarters and with the launch of SearchGPT, people are worried how that would play out for google search. Considering how our life is so intertwined with Tech, it seems to me the sell offs is unnecessary. If you think about it, even non-tech companies use tech and who doesn’t use Google nowadays on a day to day basis? Also, Google has multiple streams of revenue coming from search advertising, youtube, Google clouds, google play, Waymo (self driving taxi), Android, etc. So it would only make sense Google demands a higher multiple than a fast food chain like McDonalds.
On the other hand, Tesla, a car company pretending to be a tech company, is trading a 3.5 times the multiple of Google. I personally have a Tesla but that was probably the worst financial decision I made. Between the expensive battery replacement and the much higher car insurance cost, I find myself paying more for a Tesla than a ICE car. Replacing a Tesla car battery can literally buy me an inexpensive brand new car. Also, Musk has a history of over promised and under delivered. Looking at Google, they have been developing Waymo (the self driving taxi) since 2009. While I don’t know when Tesla started developing their robotaxi, it would appear to me any rush rollout could be disastrous, just like Cruise from GM, with accidents killing passengers and pedestrians. So either GOOG is massively undervalued or Tesla is massively overvalued. What is your take on this? Thinking on loading up Google tomorrow, but not sure if it is too early since the market is often irrational longer than we thought.
Sources: forward PE multiples obtained from CNBC
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