Motley Fool analyst Matt Argersinger recently returned from the 2017 Sohn Investment Conference in New York City, where he heard some of Wall Street's top investors and fund managers take the stage to share their views on various companies.
In this segment from Market Foolery, Matt shares why Chamath Palihapitiya, founder of venture capital firm Social Capital (and part owner of the Golden State Warriors), is bullish on Tesla (NASDAQ:TSLA).
A full transcript follows the video.
This video was recorded on May 10, 2017.
Mac Greer: Tesla. Social Capital Founder and CEO Chamath Palihapitiya --
Matt Argersinger: Oh, you nailed it.
Greer: I nailed it.
Argersinger: His name, I was so sweating that.
Greer: Yeah, we've been practicing that before the podcast. Chamath Palihapitiya pitches Tesla, tell me about that pitch.
Argersinger: Sure. He's the owner of Social Capital, a hedge fund, and he's also the part owner the Golden State Warriors, for those who don't know him. But last year, at Sohn, he famously said that Amazon.com was a 10x opportunity in 10 years. He got a lot of press behind that, so far, with Amazon up 40% over the last 12 months, he's been right. And that's kind of what he's looking for. He brought Tesla to the table at the conference. And I have to say, when he said the name Tesla, there were notable laughs across the audience.
Greer: And why is that?
Argersinger: I think because with Telsa, there's baggage. A lot of people think it's a bubble, it's a stock at an all-time high, Elon Musk is always in the news for good and bad reasons, it seems. So you have a really bipolar view of Tesla, either it's going to be an amazing success that's going to revolutionize all these industries, or it's a stock bubble waiting to crash. But Chamath Palihapitiya made the case for Tesla, and I thought it was a pretty compelling case. He said, if you think about what the Model X and Model S have done, they've essentially come out in the last several years, and they've already dominated large swaths of the market for their respective categories. And he thinks the Model 3, which is Tesla's next car, which is going to come out later this year, is going to be similar to the iPhone 3 back in 2009. In other words, this device that just comes out -- in this case, of course, an electric car -- and consolidates the market, builds huge excitement, and takes over the market, and there's going to be such demand for it, once people buy the Model 3, it's going to become the car of the future, no one is ever going to go back to internal combustion engines. And if you believe that Tesla is on this Apple iPhone curve, he thinks the auto business for Tesla could be worth $340 billion alone in 10 years. That's 7 times Tesla's current market cap, and that's just the auto business for Tesla. So, obviously, he's really excited about that.
Greer: And that's some happy shareholders if that plays out.
Argersinger: I would say. There's a lot of reasons to love Tesla, and I think having someone like Palihapitiya have confidence in it and be an investor in it ... I will qualify this by saying, he's not actually investing in the stock himself. His fund is actually buying the convertible bonds, which I think it's interesting because there's much more downside protection. You basically have to assume that Tesla goes bankrupt to not get paid on those bonds, but you get about 95% of the upside. I kind of like that play.
Mac Greer owns shares of Apple. Matthew Argersinger owns shares of Amazon, Apple, and Tesla. Matthew Argersinger has the following options: short December 2017 $800 puts on Amazon. The Motley Fool owns shares of and recommends Amazon, Apple, and Tesla. The Motley Fool has a disclosure policy.