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Tesla Stock Split Seen Drawing AI Investors

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Tesla (TSLA)’s planned three-for-one stock split is expected to broaden its investor base, drawing artificial intelligence (AI) buyers. This should happen as the electric vehicle (EV) maker times its AI Day 2 event to generate buzz around its humanoid robot and ‘a few other exciting things.’

“The news that could come from AI Day could bring a whole slew of AI focused investors,” says Noah Hamman, CEO of Tesla holder AdvisorShares, adding that the action will likely be approved soon after the board meets for its annual shareholder meeting on August 4. This would set the stage for the stock division to occur shortly before AI Day 2 on September 20.

“Scheduling the split before any big announcements will also draw retail investors who have been unwilling to buy the stock because of its high price,” adds Hamman.

The split, which could see Tesla’s price drop to roughly $250, will make the stock “more accessible to our retail shareholders,” the firm said in an SEC filing, adding that employees will also be able to more flexibly manage and grow their equity holdings. The company hopes to boost its common stock to 4 billion shares from 2 billion if the transaction is approved.

During a recent interview, CEO Elon Musk said the forum, originally scheduled for August 19, will see a working prototype of the much-anticipated Optimus humanoid or ‘Tesla bot.’ Musk has boasted the five eight, 125-pound droid is crucial to the company’s future and could one day become bigger than Tesla’s car business, which currently has a six-to-12 month order backlog for some of its models.

‘Real-world AI’

“I hope we will have an interesting prototype to show people,” Musk told a recent industry conference. “We have a very talented team I am working with closely… and we have a few other exciting things we will talk about. We have these events to emphasize that Tesla is a lot more than a car company, that we are, in my view, the leading real-world AI company…”

Tesla also sought to lure retail investors to its last, five-to-one split in 2020, which boosted its share price by 60%. Strategists, however, expect the next event will have a more muted effect amid volatile markets.

“This split won’t boost the shares as much as it did last time,” predicts Oanda analyst Ed Moya. “But there is good reason to be optimistic about Tesla’s long-term price which could reach $1,000 in the next 12 months.”

Tough splits

Volatility surrounding the Fed’s expected rate hikes and the likelihood of a steep recession (or alternative soft landing) has kept equity markets on tenterhooks, making life hard for high-growth companies such as Amazon (AMZN) and Alphabet (GOOGL), which recent 20-for-one splits failed to buoy shares.

“The carnage around inflationary expectations have pressured Amazon and Google,” says Moya. “Amazon made big commitments to ramp up its size to handle future demand but no-one expected inflation to go this high. The China Covid lockdowns and supply disruptions were a big surprise.”

Alphabet, in turn, “has much higher costs, rising competition (notably in the cloud space) and lower ad revenue,” according to Moya.

Share Buyback?

Meanwhile, Tesla could reward investors with a share buyback, says CFRA analyst Garrett Nelson in a recent note, adding that its $17.5 billion cash flow (up from $13 billion in late 2020) and growing turnover, gives it ample room for a buyback.

Tesla’s future remains bright, he adds, noting that capex requirements have declined following construction of its Berlin, Germany and Austin, Texas factories.

Tesla’s 39% year-to-date decline provides a strong buying opportunity, Nelson insists, with his $1,200 price target now looking conservative, he says.

“The stock price has suffered from a broad tech sell-off, growing recessionary fears, Covid-19-related production issues at its Shanghai factory, Musk’s stock sales to fund his planned Twitter acquisition, and concerns related to revenue and EPS from growing competition and rising costs,” Nelson wrote. “These factors have overshadowed exceptional operational and earnings execution, future production growth from the recent start-up of the Austin and Berlin factories, dramatic balance sheet improvement, and an impressive pipeline of future products.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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