This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett led the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) holding company since 1965. He likes to invest in companies with steady growth, reliable profitability, strong management teams, and shareholder-friendly initiatives like dividend payments and stock buyback programs.

That strategy is working: Berkshire delivered a 4,384,748% return between 1965 and 2023. That translates to a compound annual gain of 19.8%, which is nearly double the 10.2% annual return of the benchmark S&P 500 index over the same period. In dollar terms, an investment of $1,000 in Berkshire Hathaway stock in 1965 would have grown to over $43 million, whereas the same investment in the S&P 500, with dividends reinvested, would be worth just $312,333.

Buffett isn’t the type of investor who chases the latest stock market trends, so you won’t find him piling into red-hot artificial intelligence (AI) stocks today. But three stocks Berkshire already owns are set to benefit tremendously from AI, and they account for more than 45% of the conglomerate’s entire $398.7 billion portfolio of publicly traded securities.

1. Snowflake: 0.2% of Berkshire Hathaway’s portfolio

Snowflake (NYSE: SNOW) developed its Data Cloud to help businesses aggregate their critical data onto one platform, where it can be analyzed more effectively to extract its maximum value. The service was designed for use by large, complex organizations that work with multiple cloud providers (like Microsoft Azure and Alphabet‘s Google Cloud), a situation that often leads to the creation of data silos.

Then last year, Snowflake launched its Cortex AI platform, which allows businesses to combine ready-made large language models (LLMs) with their own data to create generative AI applications. Cortex also comes with a suite of AI tools such as Document AI, which allows businesses to extract valuable data from unstructured sources like invoices or contracts, and Snowflake’s Copilot virtual assistant, which can be prompted using natural language to provide valuable insights across the Snowflake platform.

In the company’s fiscal 2025 first quarter, which ended April 30, Snowflake’s product revenue came in at $789.6 million, a 34% increase from the year-ago period. That’s a robust growth rate at face value, but it continued a trend of deceleration from prior quarters. Though Snowflake continues to invest heavily in growth initiatives like marketing and research and development, it is acquiring new customers at a slowing rate, and its existing customers are expanding their spending with it more slowly.

Berkshire Hathaway bought its stake in Snowflake around the time of the data cloud specialist’s initial public offering in 2020, so it likely paid around $120 per share. The stock soared to as high as $392 in 2021, but it has since declined by 63% from that level and now trades at $142. Unfortunately, due to the company’s slowing growth, the stock still appears to be quite expensive, so this is one Berkshire pick investors might want to avoid (for now).

2. Amazon: 0.5% of Berkshire Hathaway’s portfolio

Berkshire bought Amazon (NASDAQ: AMZN) stock in 2019, and Buffett has often expressed regret that he didn’t spot the opportunity sooner. Amazon was founded as an e-commerce company, but it expanded into cloud computing, streaming, digital advertising, and now, AI.

Its Amazon Web Services (AWS) cloud division designed its own data center chips which can be up to 50% cheaper for AI developers to use compared to its other infrastructure powered by Nvidia‘s chips. Plus, the Amazon Bedrock platform offers developers a library of ready-made LLMs from some of the industry’s leading start-ups, in addition to a family of LLMs called Titan that Amazon built in-house.

In essence, AWS wants to become the go-to destination for developers looking to create their own AI applications. Various Wall Street forecasts suggest AI will add anywhere from $7 trillion to $200 trillion to the global economy in the coming decade, potentially making it Amazon’s largest opportunity ever.

Berkshire Hathaway owns a $2 billion stake in Amazon, representing just 0.5% of the conglomerate’s stock portfolio. AI could drive substantial growth for the company over the long term, so if Buffett wished that position was larger before, he might be kicking himself for not adding to it sooner after this next chapter unfolds.

3. Apple: 44.5% of Berkshire Hathaway’s portfolio

Apple (NASDAQ: AAPL) is Berkshire Hathaway’s largest position by far. The conglomerate has spent around $38 billion accumulating shares starting in 2016, and its position is now worth $177.6 billion — even after it sold 13% of its stake (for tax reasons) earlier this year. Apple makes some of the world’s most popular devices including the iPhone, iPad, Apple Watch, AirPods, and the Mac line of computers.

The company is entering the world of AI with its new Apple Intelligence software, which will be released alongside the iOS 18 operating system in September. It was developed in partnership with OpenAI, and it’s set to transform the user experience for Apple’s devices. Its Siri voice assistant will lean on the capabilities of ChatGPT, as will its writing tools like Notes, Mail, and iMessage, to help users rapidly craft content.

There are more than 2.2 billion active Apple devices worldwide, meaning this company could soon become the largest distributor of AI to consumers. The upcoming iPhone 16 could drive a significant upgrade cycle, because it is expected to come with a powerful new chip capable of processing AI workloads on-device.

Apple ticks all of Buffett’s boxes for a stock pick. It has grown steadily since Berkshire first invested in 2016, it’s consistently profitable, it has a resolute leader in CEO Tim Cook, and it returns truckloads of money to shareholders through dividends and stock buybacks. In fact, Apple just announced a new buyback program worth $110 billion — the largest in the history of corporate America.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 45% of Warren Buffett’s $398 billion portfolio is invested in 3 artificial intelligence (AI) stocks appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, Nvidia, and Snowflake. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) has started the week in a disappointing fashion. In afternoon trade, the benchmark index is down 0.65% to 7,771.1 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Bowen Coking Coal Ltd (ASX: BCB)

The Bowen Coking Coal share price is down almost 11% to 5 cents. Investors haven’t responded positively to news that the company has completed the sale of a 10% interest in the Broadmeadow East Mine. Nevertheless, Bowen Coking Coal’s CEO, Daryl Edwards, was pleased. He said: “The unification of ownership and operating structures for the Broadmeadow East Mine, the Burton Mine and the planned Lenton Coal Project provides BCB and MPC with significant operational flexibilities and efficiencies. It is satisfying to see this transaction successfully concluded.”

Clinuvel Pharmaceuticals Limited (ASX: CUV)

The Clinuvel Pharmaceuticals share price is down 10% to $15.57. This may have been driven by profit taking after a very strong gain from this pharmaceuticals company’s shares on Friday. That gain was driven by the release of an update on its CUV151 study, which is evaluating the DNA-repair capacity of afamelanotide on skin of healthy volunteers exposed to ultraviolet (UV) radiation. Chief scientific officer, Dr Dennis Wright, commented: “The results from RNA sequencing complement the earlier results we saw from immunohistochemistry, in that afamelanotide consistently seems to assist repair of UV-damaged DNA in the skin.”

Meteoric Resources NL (ASX: MEI)

The Meteoric Resources share price is down 11% to 16 cents. This follows the release of the scoping study results for its 100%-owned Caldeira Rare Earth Ionic Clay Project in Brazil. That scoping study demonstrated a pre-tax net present value (8%) of US$1,235 million and a payback of 2.2 years. The market may have not responded positively to the study results, but its CEO, Nick Holthouse, was very pleased. He said: “These outcomes demonstrate that the Caldeira Project is disruptive to the global rare earth mining industry in the true sense of the word.”

Pilbara Minerals Ltd (ASX: PLS)

The Pilbara Minerals share price is down 2% to $2.93. This is despite there being no news out of the lithium miner on Monday. However, it is worth highlighting that most ASX lithium stocks are under pressure today. This follows another bleak night of trade for lithium miners on Wall Street amid concerns over falling lithium prices. Following today’s decline, Pilbara Minerals’ shares are at a new 52-week low and down by 40% since this time last year.

The post Why Bowen Coking Coal, Clinuvel, Meteoric Resources, and Pilbara Minerals shares are falling appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Why Clinuvel, Guzman y Gomez, Magellan, and Sandfire shares are charging higher
• Why is this ASX 300 healthcare stock surging 12% today?
• If I’d invested $5,000 in Pilbara Minerals shares in FY24 what would I have now?
• ASX lithium shares: Screaming bargains or falling knives?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Coles Group Ltd (ASX: COL) shares significantly underperformed the S&P/ASX 200 Index (ASX: XJO) during the 12 months to 30 June 2024. Coles shares fell by 7.5%, while the ASX 200 rose by 7.8%, which means there was underperformance of more than 15%.

It may be surprising to see a performance like this because Coles’ supermarket earnings are generally seen as defensive. But, it didn’t play out like that.

As the chart below shows, the Coles share price declined significantly last year following its FY23 update, its FY24 outlook commentary, and the Ocado update.

What happened to Coles shares?

In mid-August 2023, Coles said it had received notification from Ocado that the handover of the Victorian customer fulfilment centre (CFC) would be delayed.

Additional works were required to rectify construction issues with the grid identified during quality control processes for the Victorian CFC. Ramp-up is now expected to start in mid-FY25.

The NSW CFC being built by Ocado was expected to be commissioned at the end of FY24 rather than during the second half of FY24.

Impacts of those delays are expected to increase the project capital and operating expenditure by approximately $70 million and $50 million respectively.

When Coles talked about its FY24 outlook commentary, it noted that headline inflation was moderating (which reduces sales growth). It also said stock loss (theft) was elevated and it was taking action to rectify this.

Latest update

Coles hasn’t released its FY24 result yet, so the latest shareholders information that can be used to analyse Coles shares is the FY24 third-quarter update.

For the 12 weeks to 24 March 2024, supermarket revenue rose by 5.1% year over year to $9.06 billion, and total sales rose 3.4% to $10 billion. Supermarket e-commerce sales jumped 34.9%, but total liquor sales declined 1.9%.

In the early part of the fourth quarter, the ASX share said that its supermarket volumes had remained “positive”, helped by its “value campaigns and strong execution of trade plans.”

Coles has continued to see deflation in fresh produce and meat, with moderation in inflation across its broader packaged categories. The company said this was pleasing “given the current economic environment.”

The business has also made “good progress” on addressing its loss, which is expected to continue in the fourth quarter.

However, in liquor, discretionary spending was expected to remain “subdued”, with sales in the early part of the fourth quarter “broadly in line” with the third quarter.

Coles expects its new Kemps Creek automated distribution centre and two CFCs to help improve efficiencies and differentiate its offer.

Profit estimates for Coles shares

Broker UBS thinks Coles will generate $43.8 billion in sales and $1.07 billion in net profit in FY24. The broker also forecasts that Coles shareholders could receive an annual dividend per share of 72 cents.  

The post Why did Coles shares underperform the ASX 200 so much in FY24? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Shares of AML3D Ltd (ASX: AL3) have skyrocketed in the last month, prompting many to wonder what’s behind the rapid ascent.

At the time of writing, shares in the emerging ASX defence player are swapping hands at 18.5 cents apiece, a rise of more than 160% in the last month.

Stock prices are typically based on fundamentals, such as a company’s sales or earnings. But we do know that from time to time, stocks can fly on other catalysts, such as market-sensitive announcements.

With this meteoric rise in such a short time, many are asking, is AML3D profitable? Here’s a look.

Why the sudden interest in AML3D shares?

This Adelaide-based company, which specialises in metal 3D printing for the defence sector, has made several announcements in recent months, which have resulted in enormous growth in the value of AML3D shares.

The company has been busy in the last year, securing a series of lucrative contracts. It most recently sold its 2600 Edition ARCEMY system to Laser Welding Solutions, which supports the US Navy, for $1.1 million.

This builds on another US Department of Defense contract for $1.5 million it secured earlier in the year.

Moreover, the company recently received a $1.12 million grant from the South Australian Economic Recovery Fund to advance its proprietary metal 3D printing technology

Arguably, these developments further cement its reputation in this highly specialised field.

But while these updates are great for AML3D shares, what does it mean for the actual business’s profitability?

The company reported more than 935% sales growth in its half-year results. Revenues grew to $1.5 million, up from just $147,115 the year prior.

Gross profit – which is considered sales minus costs of goods sold – came to $714,000 for the half. But stock prices aren’t sensitive to gross profits. It’s the after-tax earnings that matter.

After all costs and operating expenses, AL3MD’s net loss after tax was $3.4 million, or 1.4 cents per share, versus negative 1.3 cents per share in H1 FY23.

As such, ALM3D is not currently profitable.

Financials and future outlook

Looking ahead, there could be reasons to be optimistic about AML3D shares, particularly through its expansion into the US defence sector and ongoing technological advancements.

The company is focused on expanding its footprint with the US Navy and military. ALM3D CEO Sean Ebert said there were many opportunities to do this.

He said “continuing momentum” was driving the company’s US growth. As such, it is looking at opportunities in “the Navy’s submarine industrial base, but also across US-based, global Tier 1 Oil & Gas, Marine and Aerospace companies”.

Foolish takeaway

Investors intrigued by AML3D’s recent performance and its moves in the defence sector might view the stock as a speculative growth opportunity.

However, it’s crucial to stay aware of the inherent risks. This is especially true for companies like ALM3D, which are still navigating their path to profitability.

As always, consider your personal investment strategy and consult with a financial advisor if needed.

The post Up 160% in a month, is ASX defence stock AML3D profitable? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

We’re now into the second week of the 2025 financial year for ASX shares, and it’s been a fairly decent start to FY25 for the stock market and most ASX shares. Since the end of FY24, the All Ordinaries Index (ASX: XAO) has risen by around 0.3%.

But given that we’re still very much in the transition zone from FY24 to FY25, it’s still a good time to look back and check out some of the best, worst, and most interesting shares of FY24. So, with that in mind, today, we’ll be doing the latter and looking at the ASX’s highest-yielding dividend shares over the financial year just gone.

For simplicity’s sake, we’ll stick to the All Ords shares with market capitalisations above $1 billion. So, without further ado, here are the five highest-yielding ASX dividend shares of FY24.

The five highest-yielding ASX dividend shares of FY24

Our first ASX dividend share worth discussing is the real estate investment trust (REIT) Charter Hall Long WALE REIT (ASX: CLW). This REIT specialises in holding property assets with long weighted average lease expiries (WALEs).

Long WALE REIT units doled out four quarterly dividend distributions over FY24, which were all worth an unfranked 6.5 cents per share. At the closing FY24 unit price of $3.25, this REIT had a trailing yield of 8%.

Next up we have the financial services company Insignia Financial Ltd (ASX: IFL). Insignia shares paid out a total of 18.6 cents per share in unfranked dividends over the past 12 months.

At the end of FY24, Insignia shares were worth $2.29 each. At this pricing, the company was on a trailing dividend yield of 8.12%.

Then we have the famous ASX iron ore stock Fortescue Ltd (ASX: FMG). Andrew Forrest’s iron ore giant once again brought home the dividend bacon in FY24. The company dispensed a final dividend of $1 per share last September, followed by an interim dividend of $1.08 back in March. Both of these payments came fully franked.

These two dividends resulted in Fortescue shares exiting FY24 at a dividend yield of 9.72% as of 28 June’s closing price of $21.41.

Next up is ASX coal stock Yancoal Australia Ltd (ASX: YAL). Over the past 12 months, Yancoal delighted its investors with two large and fully franked dividend payments. The company’s September interim dividend was worth 37 cents per share, while the final dividend from April came in at 32.5 cents per share.

Put together, those two dividends gave Yancoal shares a trailing dividend yield of 10.5% at FY24’s closing share price of $6.62.

Our final ASX dividend share is listed investment company (LIC) WAM Capital Ltd (ASX: WAM).

As it has been doing for more than five years now, WAM doled out an annual total of 15.5 cents per share in fully franked dividends over the past 12 months. At WAM Capital’s last share price of $1.43 in FY24, this LIC had a trailing yield of 10.84%.

Are these high-yield ASX dividend shares worth buying?

So, we’ve established that these five ASX dividend shares paid out huge sums of dividend income over FY24. But does this mean they are automatically good buys for FY25 and beyond?

Well, no, in a word. Just because an ASX dividend share trades on a high dividend yield doesn’t mean it’s a good buy.

Remember, a share’s dividend yield reflects the past, not the future. And no share is under any obligation to pay out the same level of dividends it funded over one year in another.

It could even be argued that a high dividend yield is a red flag that requires additional homework to be done on our part to ensure that we’re not making an investing mistake.

Everyone loves a dividend on the ASX. So when the market allows a share to trade with a high dividend yield, it usually indicates that the markets don’t view the previous level of income the company provided as sustainable going forward.

Otherwise, investors of all stripes would rush to lock in that 7%, 9% or 10% yield and push up the price of the shares (thus lowering the dividend yield).

Looking at the shares above, we can see that they are not ideal candidates for dividend stability. Yancoal and Fortescue, for example, are mining companies whose profits are highly dependent on the prices of the commodities they mine. If coal or iron ore prices collapse, dividends from these companies will probably dry up quickly.

Spotting a dividend trap

The Charter Hall Long WALE REIT doesn’t have this problem of course. Its dividend distributions have been remarkably stable in recent years. However, REITs are highly influenced by interest rates. And the current uncertainty over what the Reserve Bank of Australia RBA) will do next when it comes to rates is probably keeping some investors away from this dividend stock right now.

Insignia Financial is arguably more of a case of a classic dividend trap. This company’s shares, and dividends, have been on a downward trajectory for years. Sure, there’s a chance this company can turn things around. But the market clearly isn’t betting it will do so. Hence the high yield currently on display.

It might be a similar story for WAM Capital. This company’s shares have also been in a downward spiral for years – investors have taken a 32% hit since this time in 2019. WAM Capital currently doesn’t even have enough cash to cover its dividend for the next 12 months, so it’s clear what the market is pricing in on this one as well.

Foolish takeaway

When investigating a high-yield ASX dividend share, it’s important to delve deeper into understanding why the market is offering such a high dividend yield.

The market rarely makes mistakes with these things, so unless you’re absolutely sure you know something that other investors don’t, it’s worth exercising high vigilance if you’re considering a buy.

The post These 5 ASX dividend shares had the highest yields in FY24 appeared first on The Motley Fool Australia.

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• ASX 200 coal stocks in focus as wind power fades to a breeze
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• Fortescue shares: Here are the must-know highlights from FY24
• Broker sees Whitehaven shares and one other coal stock as top buys
• Fortescue shares red-hot as court reveals company espionage

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to start the week with a disappointing decline. At the time of writing, the benchmark index is down 0.5% to 7,783.9 points.

Four ASX shares that are not letting that hold them back today are listed below. Here’s why they are rising:

Core Lithium Ltd (ASX: CXO)

The Core Lithium share price is up 15% to 10.5 cents. Investors have been buying the lithium miner’s shares after it exceeded its FY 2024 production guidance. Over the 12 months, Core produced 95,020 dry metric tonnes (dmt) of spodumene concentrate and shipped 97,423 dmt. This led to Core Lithium reporting an unaudited cash balance of $87.6 million at 30 June, which is up from $80.4 million at the end of March. However, revenue will now dry up with all activities suspended at the Finniss operation. And while restart assessments are underway, management said that the resumption of activities “would only occur when we are confident the lithium market conditions support such a decision.”

Encounter Resources Ltd (ASX: ENR)

The Encounter Resources share price is up almost 21% to 88 cents. This has been driven by the release of drilling results from the Aileron project in Western Australia. The niobium explorer revealed that aircore drilling has intersected further shallow, high-grade mineralisation at the West Arunta-based project. Encounter Resources’ executive chairman, Will Robinson, commented: “Aircore drilling is defining new belts of shallow niobium-REE carbonatite hosted mineralisation in the West Arunta. Highly enriched, near surface mineralisation has now been intersected at both the Crean and Emily targets which are located on separate structures at Aileron, over 10km apart.”

RED 5 Limited (ASX: RED)

The Red 5 share price is up 8.5% to 40.7 cents. This morning, this gold miner announced that it has entered into a restructured hedge facility and security package, repaid all outstanding loans, and restructured the hedging from the legacy Silver Lake Resources Limited (ASX: SLR) common terms deed. In addition, it advised that preliminary group sales for the fourth quarter were 110,818 ounces of gold. This brought full year sales to 455,259 ounces of gold.

Regis Resources Ltd (ASX: RRL)

The Regis Resources share price is up 2.5% to $1.82. This follows the release of the gold miner’s fourth quarter and full year update. In respect to the latter, Regis Resources achieved production of 417,700 ounces of gold for FY 2024. This was within its group production guidance range for the period. Management also revealed that it achieved a record $109 million increase in its quarterly cash and bullion balance. This took its cash and bullion balance to its highest ever level of $295 million.

The post Why Core Lithium, Encounter Resources, Red 5, and Regis Resources shares are storming higher appeared first on The Motley Fool Australia.

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• Guess which 2 ASX All Ordinaries shares were the best and worst performers of FY24?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Share prices of Tesla (NASDAQ: TSLA) are up roughly 21% in five days since it was reported that second-quarter vehicle deliveries beat Wall Street’s expectations. However, the electric vehicle (EV) manufacturer’s longer-term downward trend remains in effect as it grapples with high interest rates, competition, and other macroeconomic factors.

Could the second-quarter deliveries indicate a sustainable recovery, or will Tesla continue fading out? Let’s explore what the next five years could have in store for this innovative EV leader.

Second-quarter deliveries beat expectations — or did they?

Tesla investors don’t have to wait until earnings (expected to be released this month) to get updated on the company’s performance. Management typically releases production and delivery data along with other vehicle manufacturers on a quarterly basis (it used to be released monthly). And the much-anticipated second-quarter numbers were no exception.

With 443,956 cars delivered in the second quarter, Tesla beat Wall Street’s consensus forecast of 439,000. But this is still down 4.8% from the prior-year period and represents the second consecutive quarter of declining deliveries after a 13% year-over-year drop in the first quarter.

The better-than-expected delivery numbers sparked a double-digit percentage rally in the stock price, but the automaker is not out of the woods yet. The extent of the weakness could be revealed when the company releases its full quarterly report.

Several key problems might come up. First is pricing. Automakers can drive volume growth by lowering prices. But this can come at the expense of revenue per car sold and margins. For Tesla, this could pose a big problem because its previously high margins are the main thing differentiating it from its uninspiring mass-market rivals.

In the first quarter, its operating margins fell from 11.4% to 5.5%. And continued declines could turn the company into just another automaker.

Musk to the rescue?

With a price-to-sales (P/S) multiple of 6.33, its stock trades at a significant premium over the typical large U.S. automaker. For context, Ford Motor Company and General Motors trade for a P/S of just 0.3 and 0.36, respectively. And if Tesla becomes just another car company, it could lose much of its $560 billion valuation. Shareholders are betting that CEO Elon Musk won’t let this happen.

Fresh off securing an equity-based pay package worth $44.9 billion, Musk is incentivized to do everything possible to boost the stock price. He seems to be downplaying the automotive opportunity in favor of new growth drivers like robotics and artificial intelligence (AI).

The company is working on Dojo, a supercomputer designed to help train its machine-learning models for full self-driving (FSD). While Tesla isn’t the only company tackling this effort, it has some advantages because of the vast amount of user data it can gather from its customers with FSD software installed in their cars. Musk says its robotaxi will be revealed on Aug. 8, along with its next-gen vehicle platform.

If the robotaxis are consumer-ready, they could unlock a new nonautomotive revenue stream for Tesla, while putting it in a prime position to explore other AI uses like warehouse automation or possibly even humanoid robots over the next five years and beyond.

Is the stock a buy?

Tesla has once again become a highly speculative company. If current trends continue, its previously high-margin EV business could become commodified over the next five years amid rising competition and lower pricing power. This isn’t enough to justify the stock’s forward price-to-earnings (P/E) ratio of 57 compared to the Nasdaq Composite’s average P/E of 32.

Investors who buy the stock now are betting on Elon Musk and his ability to transform the company into more than just an automaker through AI and robotics. This is a tall order. And the controversial executive has a track record of overpromising and underdelivering.

With that said, Musk has rescued Tesla from the brink on several occasions, so there is good reason for the market to have some faith in him. The stock looks like a hold pending more information.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Tesla stock be in 5 years? appeared first on The Motley Fool Australia.

More reading

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Will Ebiefung has no position in any of the stocks mentioned.  The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended General Motors and has recommended the following options: long January 2025 $25 calls on General Motors. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.