Why Is Tesla Least Loved Among 'Magnificent Seven' By Institutional Investors? Fund Guru Gary Black Lists 5 Key Reasons

Tesla, Inc. TSLA holds the distinction of being the least-owned stock among institutional investors within the “Magnificent Seven,” as highlighted by fund manager Gary Black in a recent post. Black also delved into the factors that could instill confidence among institutional investors in the company.

What Happened: According to Bloomberg data, institutional investors hold 54% of Tesla’s float, referring to shares excluding those held by management. 

In contrast, Meta Platforms, Inc. META boasts the highest institutional ownership, followed by Alphabet, Inc. GOOGL GOOG, Microsoft Corp. MSFT, Amazon, Inc. AMZN, Nvidia Corp. NVDA, and Apple, Inc. AAPL.

See Also: Everything You Need To Know About Tesla Stock

Black’s Take: The limited institutional ownership of Tesla, according to Black, can be attributed to several risks faced by the company, including key man risk, headline risk, valuation risk due to its high P/E ratio, capital reinvestment risk, and relative underperformance over the past three years.

Expanding on capital reinvestment risk, Black highlighted concerns about how Tesla allocates cash, citing events such as the company’s Bitcoin purchase in 2021, contemplation of consolidating Elon Musk’s other ventures — SpaceX, The Boring Co., and Neuralink — under the Tesla corporate umbrella, and the possibility of an equity raise despite holding $26 billion in cash.

Black noted that Tesla is projected to accumulate $100 billion in cash by 2028. Regarding Bitcoin ownership, he emphasized that its impact is minimal, as Tesla’s holding in the cryptocurrency is currently valued at $184 million or 5 cents per share.

Why It Matters: While institutional interest in Tesla appears subdued, data indicates rising retail interest in the stock. 

Tesla was on track to record the biggest dollar inflow from individual investors in 2023, pushing behind the SPDR S&P 500 ETF SPY, a CNBC report citing Vanda Research said in late December.

Despite a more than 100% gain in 2023, Tesla experienced a 5.07% decline in the second half of the year and has lost an additional 12% so far in January, hindering a reacceleration from the lackluster phase observed since the middle of 2023.

Tesla ended Friday’s session down 3.67% at $218.89, according to Benzinga Pro data.

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