Savvy investors who are too scared to chase auto-maker Tesla’s soaring stock price should consider certain semiconductor shares, Barron’s explains.
It seems chips are behind the barrier-breaking technology, the financial newspaper explained.
“On Tuesday, the Cruise division of General Motors introduced a robotaxi with no steering wheel, called Origin. Passengers sit facing each other, prom-limo-style. To my eye, the vehicle appears to have two rears and zero fronts,” Barron’s Jack Hough reported.
“Time to buy GM? I’ve honked about those stalled shares so many times I’m at risk of losing my automotive stock-picking license. Turn sweet on Tesla instead? Barron’s Roundtable member James Anderson said this month that the stock, which has multiplied more than tenfold in price over the past seven years, to a recent $543, could one day be worth $5,000. We’ll see,” he wrote.
Bank of America recently published a report predicting car semiconductor companies will outperform the market over the next three years as the gradual uptake of electric and sort-of autonomous vehicles will push semiconductor spending higher, Barron's said.
“Currently, spending on semiconductors for electric propulsion works out to $37 for every car sold, while chips for driver-assist systems comes to $66. Those figures are projected to hit $74 and $136, respectively, by 2022,” Barron’s said.
BofA says to buy NXP Semiconductors (NXPI) and ON Semiconductor (ON) in the U.S., which are cheaper than the broad market, and in Europe, Infineon and STMicroelectronics (STM. France), which are more expensive than the market.
J.P. Morgan on Tuesday upgraded shares of TE Connectivity (TEL), a U.S. maker of sensors and such, for its exposure to electric and autonomous vehicles.
Meanwhile, Tesla (TSLA) has overtaken Germany's Volkswagen as the world's second most valuable carmaker behind Japan's Toyota, as the meteoric rise in the U.S. electric vehicle maker's shares reshuffles the global market.
Tesla's stock has more than doubled in value in the last three months, with its market capitalisation piercing $100 billion on Wednesday, a first for a listed U.S. automaker, Reuters reported.
During the rally, its value has leapfrogged more established global rivals: Honda, BMW, General Motors and Daimler. On Wednesday, it eclipsed VW's $99.4 billion value.
Toyota still holds pole position with a market cap of $233 billion.
The recent gains have been fueled by a surprise third-quarter profit, progress at a new factory in China and better-than-expected car deliveries in the fourth quarter.
Many investors remain skeptical that Tesla can consistently deliver profit, cash flow and growth.
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