Tesla Stock Teaches Important Lesson about Innovation
One of the biggest surprises of the year has been, without a doubt, Tesla Inc (NASDAQ:TSLA).
While I’ve long been a supporter of TSLA stock, dating way back to when I started writing at Profit Confidential in 2015, it has once again left many investors slack-jawed and frothing with excitement. As of this writing, Tesla stock has already more than doubled in 2020.
But what’s more important than all that for you, dear reader, is that it teaches us an important lesson about the stock market: innovation always wins out.
If you want to profit from the stock market, especially the tech stock market, you’re almost always better off betting on innovation.
You see, many have long doubted Tesla and have been bearish on the company. In fact, a massive contingent of short sellers who were hoping to see TSLA stock falter are now caught holding nothing but huge losses in their portfolios.
Chart courtesy of StockCharts.com
Tesla short sellers have lost more than $8.0 billion since the start of 2020, with $2.5 billion being lost in February 3’s surge alone. (Source: “Tesla short sellers are down $8 billion in 2020, including $2.5 billion alone from Monday’s pop,” CNBC, February 3, 2020.)
The reason is simple: Tesla stock is looking to innovate.
Since it first arrived on the scene, the company has always aimed to be on the cutting edge of green energy and electric vehicles. From producing affordable cars to being among the first to incorporate autonomous driving, Tesla has never rested on its laurels, instead always looking to improve its products.
That innovative streak has paid off with huge gains in 2020, and those gains will likely continue to swell. The reason is that people have bought into the idea of Tesla.
Since 2018, billionaire investor Ron Baron has been saying Tesla has the ability to hit $1.0 trillion in revenue by 2030—and then continue growing its revenue. (Source: “Tesla investor Ron Baron sees $1 trillion in revenue in 10 years — and that won’t be the end,” CNBC, February 4, 2020.)
“It’s nowhere near ended at that point and time,” said Baron recently. “There’s a lot of growth opportunities from that point going forward.”
Baron’s investment firm, Baron Capital, Inc, holds more than 1.6 million Tesla shares, showing that he puts his money where his mouth is.
Baron went on to say that his firm would not sell a single share of the company, showing true confidence in the future of TSLA stock. After all, he said that this is “just the beginning” and that Tesla “could be one of the largest companies in the whole world.”
Tesla now has a market cap bigger than Fiat Chrysler Automobiles NV (NYSE:FCAU), Ford Motor Company (NYSE:F), and Bayerische Motoren Werke AG (ETR:BMW, OTCMKTS:BMWYY) combined.
While this is all fantastic news for Tesla stock bulls, there’s actually an opportunity for investors to make even more money from the TSLA stock surge: by learning the important lesson that the company is imparting. Namely, put your money on innovation.
Tech Stock Growth Relies on Innovation
There’s no end to the number of companies that people hate, only to have those companies’ share prices soar to record highs in spite of the doubts.
One that easily comes to mind is Amazon.com, Inc. (NASDAQ:AMZN). The company has its downs, sure, and for a long time it was losing immense quantities of money. But now it’s the most dominant company in the world, led by the richest man on the planet.
And much like Tesla, Amazon achieved all those gains in the exact same way: by focusing on innovation.
When we get inundated with numbers and projections, it’s easy to lose sight of what makes tech stocks so special in the first place. A perfect example is the ride-sharing apps that issued initial public offerings (IPOs) in 2019.
Both Uber Technologies Inc (NYSE:UBER) and Lyft Inc (NASDAQ:LYFT) had disappointing IPOs precisely because they forgot that the golden rule of tech companies is that they have to offer something new and exciting.
Both companies had been around too long in the private market and had developed bloated valuations without having offered anything fundamentally new for some time to entice consumers or investors.
For tech stocks, that combination is deadly.
Chart courtesy of StockCharts.com
Things have begun to turn around for Uber stock and Lyft stock in 2020, but they are still down big from their IPO prices, precisely because they weren’t exciting anymore.
Tesla, by contrast, has remained a power player because it continues to look for ways to innovate. Building “Gigafactories,” branching out as a green energy company, making newer car models, expanding markets, etc. are all ways that Tesla stock has managed to keep people excited.
Not to mention that having one of the most, if not the most, recognized CEO on Earth, in the form of Elon Musk, always helps keep hype flowing.
So instead of pining over missing out on the early rush with TSLA stock, what investors can do now is seek out tech stocks of companies that are innovating.
From 5G, to artificial intelligence (AI), to marijuana, to meat-alternatives, there is a host of emergent industries with innovative qualities. There are dozens of stocks in these sectors right now that could see gains in the coming years that would put Tesla stock to shame.
TSLA stock has done a good job of reminding us that the companies in the tech industry that are always looking to improve and grow are the companies that are the most poised for success.
Dear reader, we’re lucky that there’s no shortage of industries where growth and innovation are taking place.
Tesla stock’s huge gains prove once again that, in the world of tech stocks, innovative companies are king.
The companies that make big promises and then deliver on those promises are usually going to be better bets than the companies that rest on their laurels. That’s especially true in a sector where “change” is practically synonymous with many companies.
What TSLA stock shows us is that there’s immense potential in betting on the future, so investors ought to keep that in mind when looking at stocks.