There is one company whose share price outperformed all the large-cap tech stocks over the last decade – Tesla.
Tesla’s share price increased from $19.70 in August 2010 to $2,238.75 on 27 August 2020 – an increase of 11,364%.
This means if you invested $10,000 in Tesla in August 2010, you would now have $1.14 million.
If one takes the rand’s devaluation into account over the last decade, a R10,000 investment in Tesla in August 2010 would now be worth R2.6 million.
With a price-to-earnings (PE) ratio of 1,152 and a market cap larger than that of Toyota Motors, many investors have warned the company is overvalued.
Others disagree. Vestact portfolio manager Byron Lotter remains bullish on Tesla because of its core value proposition.
He said Tesla is set to dominate the electric vehicle (EV) market for the next decade, and it is very possible that it will become a $1-trillion company.
“I think they are going to corner the EV market in the next decade just like Apple did with smartphones because of their first-mover advantage and brand quality,” he said.
He added that Tesla’s energy utilities business is also under-estimated.
“Maybe on a fundamentals basis Tesla’s valuation does not make sense, but that can be said for many other companies like Amazon in the 2000s,” he said.
The chart below shows the Tesla share price over the last decade.
Rapid growth in tech shares explained
While Tesla’s share price outperformed mega-cap technology companies, they have also shown strong growth.
Netflix’s share price increased by 2,834% over the last decade and Amazon’s share price increased by 2,685%.
Apple, Microsoft, Facebook, and Google have also shown strong growth over the last decade.
A lot of the growth happened in tech shares happened over the last 5 months, following the stock market crash in February and March.
This may seem strange, as the COVID-19 pandemic and subsequent lockdowns caused a global economic downturn.
However, the current financial situation has created a unique environment which is fuelling the unprecedented rally in tech stocks.
Vestact founder and CEO Paul Theron said there are a few factors which caused this rapid recovery of the US stock market.
- The policy response to the pandemic was incredibly swift with central banks around the world cutting interest rates. They also pumped billions of dollars into the economy.
- US bond rates have gone down to very low levels.
- Interest rates for bank savings have plummeted to nearly zero.
- Property assets have an uncertain future without the promise of guaranteed returns.
“There is literally no alternative for long-term savers other than buying blue-chip shares,” said Theron.
He added that the best blue-chip shares are the tech giants whose services are perfectly suited to serving people during a lockdown.
“The lockdown and working from home have been fantastic for Apple, Amazon, Facebook, Google, Microsoft, Netflix, and Nvidia,” he said.
Theron said the tech and healthcare sectors are behind the strong rally which has been pushing the US stock market to all-time highs.
Billionaire investor Bill Ackman explained the pandemic affects companies differently and large-cap companies with strong balance sheets are beneficiaries.
This rapid market recovery is driven by big tech companies like Amazon, Apple, Microsoft, Facebook, and Google, which are now hitting all-time highs.
Ackman explained these tech giants make up a large percentage of market-cap-weighted indexes like the S&P 500 and Dow Jones.
This explains the rapid market recovery while economies around the world continue to struggle.
Tech share growth over the last 10 years
The table below shows the growth of prominent tech companies over the last 10 years.
It also shows how much money you would have now if you invested $10,000 in these companies in August 2010.
It should be noted that Facebook was only listed in May 2012, which means its share price growth is only for the last 8 years.
|Company||Share price in August 2010||Share price in August 2020||$10,000 investment in August 2010|