Tesla and SpaceX shed a combined $420 billion in market value after the U.S. midterm election. Both later recovered most of the losses, but the episode showed their exposure to political and regulatory risk.
Tesla and SpaceX lost a combined $420 billion in market value in the days after the U.S. midterm election. However, both companies recovered most of these losses and now trade back around their pre-election levels.
Data center limits threaten Tesla's AI plans
The Motley Fool's Prosper Junior Bakiny writes that Tesla's Optimus robot and its robotaxi ambitions explain why the stock commands high earnings multiples. Its core electric vehicle business, meanwhile, has delivered a mixed (at best) performance over the past two years.
Tesla needs considerable computing capacity to train the AI models behind its Full Self-Driving software and Optimus. Bakiny says the election results could create a problem here, because voters elected officials who ran on limiting data center expansion.
Other parts of the business could also draw scrutiny and potentially trigger congressional probes. The Cybercab, which attracted scrutiny from regulators as soon as it hit the road, could come under investigation again.
SpaceX faces its own regulatory exposure
SpaceX is looking to significantly increase computing capacity next year to meet demand for its AI services. Those plans might not go as expected if regulators and lawmakers crack down on data center expansion.
Some lawmakers also recently looked into investigating whether SpaceX restricted Ukrainian military access to its Starlink and Starshield services. In addition, the two companies' boards have formed special committees to investigate a proposed merger. Bakiny expects significant regulatory pushback if they proceed.
Valuations leave little room for error
SpaceX trades at 48.4x forward earnings, while Tesla trades at 159.5x. Bakiny argues that current share prices arguably already factor in significant success from the companies' most promising projects.
Bakiny says he is staying on the sidelines and would revisit his position if both stocks fall perhaps by 20% or more from current levels.
Source: The Motley Fool
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