Robinhood, the online brokerage known for its easy-to-use stock trading app, often attracts a younger cohort of investors looking to get started in the market. And this group of investors has gravitated toward a small collection of stocks.
Two stocks that continue to catch the eye of Robinhood investors are Tesla (TSLA 4.96%) and Microsoft (MSFT -2.45%). While it's not smart to blindly follow what the crowd is doing, it would also be unwise to dismiss popular companies just because there's a lot of interest in them. Here's why investors on Robinhood's platform are right to believe in Tesla and Microsoft's market-beating potential.
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Tesla
Some investors were unhappy with Tesla's first-quarter results, as they honed in on Tesla's earnings fall of 24% from the year-ago quarter.
Tesla said that net income dropped due to margin pressure from higher material costs, a reduction in some government tax credits, and "underutilization of factories." But despite some of that pressure, the long-term narrative for Tesla's growth story is still well intact.
For one, Tesla's vehicle production increased 44% from the year-ago quarter to over 440,000, and deliveries were up 36% to more than 422,000. Additionally, vehicle revenue climbed 18% to $19.9 billion in the quarter.
Second, while a lot of ink has been spilled about Tesla's recent price cuts, I think the company temporarily lowering some of its vehicle prices shows just how much command of the market it has. Smaller EV start-ups are floundering right now amid higher interest rates and rising material costs. Meanwhile, Tesla's production is humming along, and sales are rising.
Tesla isn't a sure bet -- no stock is -- but I think it has fantastic long-term potential because the company is in a leading position in the EV market at a time when smaller rivals are still trying to figure out how to raise enough capital.
Microsoft
Investors may be especially excited about Microsoft right now because of the company's impressive moves in artificial intelligence. Over the past several months, Microsoft has integrated the popular AI chatbot ChatGPT into its Bing search tool and its suite of Microsoft 365 apps.
The company is going all-in on AI, and has already invested $13 billion into ChatGPT's creator OpenAI. Microsoft views AI as the next big step in tech innovation, with a focus on how AI will transform nearly all of the apps and services consumers currently use.
The company isn't wrong to focus on AI's potential for transformation. The AI-powered software market is expanding quickly, and Ark Investment Management estimates it will reach $14 trillion by 2030.
While the dust hasn't settled yet in the AI race, Microsoft is a clear leader right now. The company is the No. 2 cloud computing company after Amazon, which gives it massive potential to benefit as AI apps and services grow, eating up far more cloud computing power than is already used.
With Microsoft poised to benefit from the cloud's AI growth, as well as AI-powered software for its own services, this tech behemoth could prove to be a great long-term winner in the years ahead.
Keep looking ahead
There's still some significant market uncertainty right now as investors try to figure out what's happening with the economy. But keeping your eyes focused on the path ahead is the best way to not panic when others are making rash decisions. Microsoft and Tesla have a lot of potential to outpace the broader market -- but only for patient investors with cool heads.
