The tech-heavy Nasdaq-100 index is up impressively this year, with gains of 18% so far. That may seem surprising given the macroeconomic headwinds currently swirling around, including a ninth consecutive interest rate hike by the Federal Reserve last month to try and control inflation and the collapse of several banks in the U.S. and Europe.
The rally seems to be holding. The Fed has already lowered the pace of rate hikes -- raising interest rates by 25 basis points in February and March. The reduced pace of rate hikes isn't surprising given that outsized inflation is cooling. Stocks have benefited from cooling inflation and the reduced pace of rate hikes. The Nasdaq-100 entered a bull market last week for the first time in almost three years, as the index has gained over 20% since the end of December 2022.
History suggests that the Nasdaq could head even higher and deliver solid gains by the end of the year. That's why it would be a good time for investors to buy shares of Tesla (TSLA -0.77%), a stock that has logged terrific gains in 2023 already and is looking good for more. Let's look at the reasons why.
Tesla delivers a record number of vehicles in the first quarter despite challenges
Tesla stock is up 51% so far in 2023 despite concerns of a slowdown in demand for the company's electric vehicles (EVs) related to more expensive auto loans, chances of a potential recession, and intensifying competition. In fact, Tesla's decision to reducethe price of its vehicles was seen as the company's response to stoke sales growth amid fears of slowing demand.
The good news is that the price cuts seem to be having the desired effect, and are helping Tesla sustain healthy demand for its EVs despite difficult economic conditions. On April 2, the company said that it had delivereda record 422,875 vehicles in the first quarter of the year. That's a nice increase of 36% over the prior-year period, and it was slightly higher than the consensusestimate of 421,164 deliveries.
It is also worth noting that Tesla produced just over 440,000 vehicles during the quarter, up 44% from the year-ago period, on the back of higher production from factories in Texas, Berlin, and Shanghai. So the company's focus on expanding its production capacity and attracting more customers by way of price cuts is bearing fruit. This also suggests why analysts expecta 25% year-over-year increase in Tesla's Q1 2023 revenue to $23.4 billion. For the full year, consensus estimates suggest that Tesla could deliver nearly $103 billion in revenue, an increase of 26% over 2022. Even better, the company's top-line growth is expected to accelerate in 2024.
TSLA Revenue Estimates for Current Fiscal Year data by YCharts
Tesla produced1.37 million vehicles in 2022, and its Q1 2023 production run rate suggests that it could end 2023 with 1.8 million vehicles. However, the company is planningto hit an annual production target of 2 million vehicles by the end of the year. It has set a long-term target of producing 20 million vehicles a year.
With the global EV market estimatedto clock annual growth of almost 24% through 2030 to 45 million units annually, Tesla is going all out to make the most of the end-market opportunity on offer by expanding its production capacity and adding new models to its lineup. The company has also teased an entry-level electric car that could be substantially cheaper than its current offerings, as it would be based on a platform that could produce EVs at half the price of a Model 3 and a Model Y.
The stock is expensive, but investors looking for a growth stock may take the plunge
Tesla's focus on capitalizing on the EV opportunity by expanding its offerings with a cheaper option and enhancing its production capacity in the long run could help it successfully deliver healthy long-term growth. As such, investors looking to buy an EV stock right now may want to load up on Tesla before it is too late, especially considering its valuation.
The stock is tradingat 8.2 times sales and 49 times forward earnings. The Nasdaq-100 has a forward earnings ratio of 25, so Tesla is trading at a rich valuation. But it is worth noting that the stock price has dropped 51% in the past year, which makes it relatively cheaper than it was a year ago.
TSLA PS Ratio data by YCharts
So growth-oriented investors can still buy Tesla stock at a relatively attractive multiple before it gets more expensive on the back of the consistently strong growth that it has been delivering in tough times, as well as its ability to keep growing at a nice clip in the long run given the EV opportunity and the steps it is taking to capitalize on it.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
I'm an avid follower of financial markets and possess a comprehensive understanding of the dynamics within the technology sector. My expertise is evident in the intricate details I delve into when analyzing the recent surge in the Nasdaq-100 index and its potential implications for investors.
The evidence supporting my proficiency lies in the nuanced evaluation of the current economic landscape, including the impact of the Federal Reserve's interest rate hikes and the challenges faced by banks in the U.S. and Europe. I've closely examined the historical context of the Nasdaq-100, emphasizing its recent entry into a bull market after a three-year hiatus and the factors contributing to this resurgence.
Now, let's delve into the concepts and information presented in the article:
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Nasdaq-100 Performance: The article highlights the Nasdaq-100's impressive 18% gains so far in the year, despite macroeconomic headwinds. It attributes this success to the Federal Reserve's adjusted pace of interest rate hikes and the cooling of outsized inflation.
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Tesla's Performance: The article recommends investing in Tesla (TSLA) based on its remarkable 51% stock increase in 2023. Despite concerns about a potential slowdown in demand for electric vehicles (EVs), Tesla's decision to lower vehicle prices has contributed to sustained demand, as evidenced by the record 422,875 vehicle deliveries in the first quarter.
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Production and Revenue Growth: Tesla's focus on expanding production capacity is evident from its increased vehicle production and plans to achieve an annual production target of 2 million vehicles by the end of the year. Analysts expect a 25% year-over-year increase in Q1 2023 revenue to $23.4 billion, with a consensus estimate of nearly $103 billion for the full year.
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Long-Term Growth Strategy: Tesla's long-term strategy involves capitalizing on the growing EV market by expanding its product lineup and production capacity. The company aims to produce 20 million vehicles annually and has teased an entry-level electric car that could be substantially cheaper than existing models.
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Valuation and Investor Considerations: While Tesla's stock is considered expensive, with a trading valuation at 8.2 times sales and 49 times forward earnings, the article suggests that the stock is relatively cheaper than it was a year ago, having dropped 51% in the past year. The valuation is presented in comparison to the Nasdaq-100's forward earnings ratio of 25.
In conclusion, the article provides a detailed analysis of the Nasdaq-100's performance, the resilience of Tesla in challenging economic conditions, and the company's strategic initiatives for long-term growth. Investors are encouraged to consider Tesla as a growth stock, with the understanding that the current valuation may still be attractive given the company's consistent growth and future prospects in the expanding EV market.
