Elon Musk’s recent Twitter antics — including taking a 9 percent stake in the social media firm, changing his mind about joining its board, and then threatening to buy the whole company — appear to have unnerved some Tesla shareholders.
To wit, Tesla’s stock is down about 13 percent since Musk’s stake in Twitter was reported on April 4.
But while short sellers are crowing about the latest plunge, Tesla still has its stalwart defenders, like Arne Alsin’s Worm Capital.
At the end of the year, Tesla accounted for 48 percent of Worm’s publicly traded equity portfolio, according to filings with the Securities and Exchange Commission. And according to the firm’s recent quarterly letter to investors, Worm Capital has become “increasingly bullish” on Tesla, having added to its stake during the first quarter.
Alsin’s hedge fund jumped 29.35 percent in March, driven by gains in Tesla, its biggest holding, according to the letter to investors. The fund was still down 18.12 percent for the year, but that may have more to do with its second-biggest position, Spotify. While Tesla was up about 2 percent through the end of March, Spotify had fallen 35 percent — with some of the decline due to the controversy over its Joe Rogan podcasts.
“At a high level, we believe Tesla is on a path to dominate the S&P 500,” Alsin wrote investors. “Much like Amazon emerged from the Nasdaq Bubble and the Financial Crisis, we think Tesla has at least another 10 years of growth ahead, and it is just now hitting its inflection point of accelerated, rapid growth.”
He added that “consensus estimates of Tesla’s growth are, in our view, extremely low. This dynamic, in our opinion, will likely result in consistent upwards revisions to expectations, creating one of the more dramatic arbitrage investment opportunities we have ever come across.”
“Tesla’s stock price and market value is no longer a reflection of anticipated success,” he continued. “It reflects its current success and proven ability to generate substantial earnings and record-setting cash-flows at scale. In sum: It’s early days. “
In the letter, Alsin noted that some high-growth companies have “completely roundtripped back down to 2018 levels.” That is the case for Spotify, he acknowledged, though he’s still holding onto the stock, arguing it can “eclipse” the value of Netflix over the next several years.
Alsin also argued that “these types of drawdowns don’t happen very often, but they do indicate that there was perhaps too much speculation that needed to be purged from the market.”
“Dominant companies should thrive in this environment,” he added. “By flushing out the weak hands, we think the market has forced investors to concentrate capital into the top companies with real value propositions. From our perspective, many companies that got caught in the 2021-22 ‘Innovation Bubble,’ as we might call it, may never reclaim the values they once had.”
“Just as Pets.com never recovered from the Nasdaq bubble, other companies, such as Amazon, went on to become trillion-dollar conglomerates,” he continued. “We think that’s the environment we’re in today.”
Chis Brown, the founder of Aristides Capital, has taken an opposite view — and so far this year, his performance is better. After the March rally in growth stocks, his fund was down 0.54 percent for the month — with its Tesla short the biggest loser — and down 1 percent for the year.
“If I were a betting man (and obviously I am) I would bet that this is just a ‘dead-cat bounce’ as a massive speculative bubble bursts,” Brown wrote in his March letter to investors.