Earnings take on Salesforce and Pure Storage; Tesla’s growing risks

Pure Storage guidance disappoints, AI related growth is picking up

Pure Storage, a manufacturer of all-flash data storage hardware, disappointed investors yesterday with its Q4 guidance on revenue at $782mn vs est. $924mn indicating that estimates were too optimistic on the back of AI sentiment. Operating income guidance in Q4 was $150mn vs est. $197mn. Pure Storage is part of our AI theme basket. Another company in our AI theme basket that reported last night was Snowflake and unlike Pure Storage it guided Q4 revenue above expectations and the operating margin guidance was 200 bps above consensus.

Out of the 20 stocks in our AI theme basket, Marvell Technology and UiPath that are missing on earnings results, but both companies actually reporting earnings tonight. But if look at the revenue growth figures for the remaining 18 companies in our AI basket then revenue growth (excluding Nvidia) has actually rebounded in Q3 signalling spending is turning around.

The three risks confronting Tesla

Tesla shares touched $250 yesterday before closing around $244 staging an impressive rebound this month up 21.6%. While sentiment remains bullish on Tesla there are growing risks that shareholders should think about.

• The ‘Morocco risk’ – competition is heating up in every market, but the production of EVs is simpler that ICEs and as a result even a country such as Morocco now has its own local EV manufacturer. This opens up the competitive landscape to a whole new dimension and in the potential new age of nationalism is could lower Tesla’s long-term market share trajectory.
• The ‘Unionization risk’ – the recent strikes in Sweden and looing unionization among its German workers are indicative that Tesla has reached a size now where society and its workers will demand different things from Tesla. Long-term that could be a headwind for operating margin. European labour markets are very different from China’s labour market that has so far been producing most of the EVs for the European market. But even in the US, the UAW union is targeting 12 carmakers including Tesla for unionization.
• The ‘Musk risk’ – the CEO is both the company’s biggest strength but also its biggest risk. Musk’s comments and actions have become more volatile over the years and the question is whether at one point these actions could begin harming Tesla’s brand. His latest comments to an antisemitic post on X have yet again showed the risks his personality brings to the Tesla brand.

Previous equity notes:

• 30 Nov 2023 - Earnings take on Salesforce and Pure Storage; Tesla’s growing risks
• 28 Nov 2023 - CrowdStrike earnings and the never ending growth in cyber security
• 27 Nov 2023 - Mega cap stocks are hitting a ‘2020 moment’
• 22 Nov 2023 - Nvidia trades lower are blasting estimates as China risks loom
• 21 Nov 2023 - Bayer has become a case for the patient investor
• 17 Nov 2023 - Earnings preview: Is the ’Intel moment’ coming for Nvidia?
• 15 Nov 2023 - Green stocks rally on lower inflation; earnings update
• 13 Nov 2023 - NIO squeeze, Tesla valuation, and Renault EV IPO
• 10 Nov 2023 - Plug Power plunges 37% on potential cash crunch
• 9 Nov 2023 - Adyen outlook, Disney surprise, and India’s steel demand