In late August, Federal Reserve Chair Jerome Powell hinted at continued interest rate hikes if the economy fails to cool down. However, concerns have arisen once again due to core consumer inflation, driven primarily by rising oil prices, leading investors to worry that the Fed will maintain its hawkish stance. Growth-oriented stocks, in particular, are susceptible to the impact of rising interest rates, as they are valued for their future profitability, making them less appealing in the face of increasing Treasury yields.
During periods of economic uncertainty, it’s prudent to focus on growth stocks with robust competitive advantages. As market sentiment turns sour, leading large-cap growth stocks like Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN) may potentially become available at discounted prices.
Tesla Stock
On September 11th, Tesla received an upgrade from Morgan Stanley’s Adam Jonas, who also raised its price target by a significant 60%. The upgrade was based on the belief that Tesla’s Full-Self Driving (FSD) supercomputer, known as Dojo, could add up to $500 billion to the company’s value.
While the average 12-month price target for TSLA remains lower than its current price, this optimistic outlook from Morgan Stanley highlights the pivotal role that Tesla’s Dojo supercomputer might play in elevating the company’s valuation. Despite some post-earnings volatility following Tesla’s second-quarter results, where concerns over margin contraction arose amid the ongoing electric vehicle price war, the company reported a 20% increase in profits and a 47% rise in revenue, outperforming expectations.
Tesla continues to compete aggressively by launching updated models and preparing for Cybertruck deliveries. The announcement of the long-awaited Semi truck has also garnered attention. Concerns about CEO Elon Musk’s involvement in other ventures, like Twitter, have been partly alleviated with his appointment of a new CEO for X Corp.
Despite regulatory scrutiny and competition, Tesla’s stock remains resilient, forming a new base and offering a potential buying opportunity for long-term investors, particularly if negative sentiment becomes excessive.
Amazon Stock
Amazon’s stock has shown impressive year-to-date growth of over 71%, yet it still lags 23% below its all-time high set in July 2021. Furthermore, the stock’s price-to-sales ratio is currently about 15% below its five-year historical average.
Operationally, Amazon maintains a wide economic moat. Its online marketplace, responsible for nearly 40% of all U.S. e-commerce sales, benefits from network effects, attracting both merchants and consumers. With a massive global customer base and monthly traffic exceeding 2.8 billion visitors, Amazon’s platform becomes more valuable as it expands.
Additionally, Amazon’s scale and dominance have allowed it to accumulate substantial data resources, particularly through Amazon Web Services (AWS), positioning it as a leader in the growing field of artificial intelligence (AI). AWS revenue growth in Q2 2023 exceeded expectations, further underscoring its strategic importance.
Amazon’s robust economic moat, data-driven advantages, and potential for AI-driven growth make it an appealing long-term investment. It’s a stock to consider picking up if short-term macroeconomic concerns lead to a temporary dip in its price.
Conclusion
Despite the noise surrounding monetary policy and economic conditions, solid companies can thrive in the long term, irrespective of short-term challenges. Investors should closely monitor Tesla and Amazon, as they are currently sensitive to inflation and the Fed’s policy response. Given the historically bearish trend for stocks in September, there may be opportunities to acquire these shares at more attractive prices in the near future.
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