Strategy & economics

"Tesla - and other tech giants - are not overpriced"

This time it’s different: technology analyst and fund manager Josh Spencer explains why some firms deserve their sky-high valuations

15/05/2018

Why are the shares in controversial technology businesses such as Tesla – which is losing hundreds of millions of dollars each month – so expensive?

The electric car and power storage business has seen its shares fall approximately 20% since mid-2017, but the business still has a market value of $49 billion. Yet in the first quarter of 2018 its losses neared $800 million.

In this video Josh Spencer, a technology analyst and portfolio manager with T Rowe Price, argues that the traditional measures used by analysts to value businesses do not readily apply to certain rapidly-growing firms.

Josh Spencer’s T Rowe Price Global Technology fund has been identified and selected by Cazenove Capital as a potentially attractive holding for some clients.          

Speaking at an event in London hosted by Cazenove Capital, he said: “We have to look beyond the reported financials at the earnings potential.” It’s about “buying tomorrow’s winners” and not being deterred by “trailing financial metrics”.

His words might sound familiar to investors who recall some of the extraordinary claims made about technology businesses in the late Nineties, many of which went on to fail.

But Mr Spencer said there were key differences today.

In the case of Tesla, he argued, the “underlying economics do work”. Citing Amazon as an example of a fast-growing firm that followed a similar course, he believes it is a matter of building sufficient scale after which the business will become cash-generative and highly profitable.

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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