Why SpaceX and Tesla are 'value' stocks, according to this fund manager

By Barbara Kollmeyer

Christopher Tsai says investors are missing out by not focusing on future earnings

Investors might be overlooking SpaceX's value potential, says one money manager.

Charles Schwab strategists recently warned investors against putting their money into companies making growth promises that push out far into the future.

But successful value investing requires precisely that faith, according to the president and chief investment officer of Tsai Capital, Christopher Tsai. "If you look at SpaceX and say, 'Oh, it's selling at a crazy multiple,' you might be making the classical error that these companies are increasingly investing so much now, depressing earnings now, to create more value later," he told MarketWatch in a Monday interview.

"What you really should be thinking about is what's the base-case scenario, what's the bear case and what's the bull case in say, five years. Based on that, you know, and this is how we think about it," said Tsai, whose portfolio includes stakes in Elon Musk's companies.

The manager introduced a white paper in May framing what he said was the fourth evolutionary stage of value investing, or Value Investing 4.0. It's a step beyond what he called the 3.0 platform/ecosystem models like that of Amazon, whose heavy investments have often depressed profits to achieve intrinsic value later.

A successful 4.0 value company meets four criteria: building an intelligence-based moat, or barrier to competitive entry; producing digital labor as its core product; operating a self-sustaining business model; and reinvesting capital into operating businesses at a high rate of return.

Christopher Tsai discussed Value Investing 4.0 at the Zurich Project 2026 forum in Switzerland.

Tsai said he sees potential within the "deep moats" of SpaceX (SPCX) and Tesla (TSLA) - he first bought into the EV maker in early 2020. Tesla's profitable car business helps fuel its intelligence-based businesses, such as Dojo AI and the Full Self Driving technology, he said.

"These are really the companies at the forefront, and they're going to create, in our opinion, so much value, and people are missing that because they're just focused on the near term," he said.

Guessing future winners in AI and automotive intelligence will be tough, though, with Tsai assigning only a 1% to 5% likelihood of success to companies in those categories.

"The way we're approaching this is to first be extremely selective as to what kinds of businesses we're investing in. And to recognize the probability of success is low," he said. But the right pick will bring "massive" upside, largely given the vast skepticism around AI, for example, that's holding investment money back.

The portfolio is "diversified over 14 very high-quality businesses. We don't own companies [that lack] significant competitive advantages," he said.

Tsai's portfolio owns what he calls AI infrastructure players - Amazon (AMZN), Alphabet (GOOGL) and Microsoft (MSFT). "No matter who wins the AI race, there's going to be more and more data, more and more traffic, and more and more compute flowing over these three cloud providers," he said.

He also isn't budging on some tougher bets, such as building-products company QXO (QXO), whose shares are down 34% over the past year. "It's our experience that Brad Jacobs, the CEO, thinks in kind of decade terms, and he's very much aligned with our vision, so we plan to be owners for a decade."

CoStar Group (CSGP) is a recent addition to the portfolio, and Tsai believes, he said, that AI won't be able to duplicate its proprietary residential and commercial data.

"The CEO, Andy Florance, has also had a very successful history of buying companies, building them and creating value for shareholders," said Tsai. Shares are down 65% over a year following clashes with big investors around Florence's purchase of Homes.com.

Tsai sees a win-win situation with CoStar, which he said just reported its 60th straight quarter of double-digit revenue growth. Either Florance and his team turn around the residential side of the business, or they drop it and see losses disappear, then perhaps buy back stock. "There's a lot of optionality if Homes.com doesn't work out."

The markets

U.S. stocks SPX DJIA COMP are rising after tamer-than-forecast inflation data, with tech pointing to a 1.2% gain. Brent oil (CL.1) (BRN00) is up 3.6%. Gold (GC00) and silver (SI00) are climbing.

 
Key asset performance                                                Last       5d      1m      YTD     1y 
S&P 500                                                              7515.34    -0.29%  -0.52%  9.79%   19.89% 
Nasdaq Composite                                                     25,873.18  -0.95%  -3.04%  11.32%  25.35% 
10-year Treasury                                                     4.623      6.70    17.80   45.10   13.50 
Gold                                                                 4027.9     -2.15%  -7.47%  -7.02%  20.94% 
Oil                                                                  80.6       11.63%  5.19%   40.39%  20.75% 
Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Consumer-price inflation fell 0.4% in June, the first drop since 2020 and a bigger than forecast drop. The annual rate slowed to 3.5%.

IBM shares (IBM) are headed for their worst day in 40 years after preliminary revenue and adjusted earnings per share missed forecasts.

Bank of America (BAC) reported a jump in earnings, but the stock is slipping. JPMorgan Chase (JPM) reported a blowout second-quarter profit, but shares are off as it guided for higher expenses, as rival banks also reported.

Ahead of testimony to Congress at 10 a.m., Fed Chairman Kevin Warsh said the high inflation seen in the past five years will disappear if the central bank nails interest-rate policy. Also on the day's speaking docket are Fed governor Michael Barr, Chicago Fed president Austan Goolsbee, Fed governor Lisa Cook and Fed Vice Chair for Supervision Michelle Bowman.

The U.S. carried out strikes on Iran for a third straight night. U.S. strategic oil reserves, meanwhile, are dwindling.

Tower Semiconductor's stock (TSEM) is surging on news of a $3 billion investment from Japan.

Ericsson shares (ERIC) are tumbling after the telecom-equipment maker said rising component costs were eating away at margins.

The Americans striking it rich in the data-center build-out.

The chart

The chart from Vanda Track shows how single-stock net buying by retail investors is now at its lowest weekly level since the pandemic. "Retail [investors] are simply selling more," said Vanda Track, which noted retail flows are now becoming more two-way. Apple (AAPL), Tesla and Nvidia (NVDA) were among the big names sold as retail investors "appear to be harvesting gains following a powerful AI-led rally and recycling capital into newer opportunities."

Top tickers

These were the most searched ticker symbols on MarketWatch as of 6 a.m.:

 
Ticker  Security name 
NVDA    Nvidia 
SPCX    SpaceX 
MU      Micron 
TSLA    Tesla 
TSM     Taiwan Semiconductor Manufacturing 
AMD     Advanced Micro Devices 
SNDK    Sandisk 
AAPL    Apple 
MSFT    Microsoft 
PLTR    Palantir 

Erling Haaland's World Cup souvenir/mascot.

-Barbara Kollmeyer

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07-14-26 0945ET