Technology doesn’t just “automatically improve,” according to Elon Musk. In a TED interview a few years ago, the Tesla CEO used NASA’s space missions as an example of declining tech prowess.
“If you look at the progress in space, in 1969 we were able to send someone to the moon,” he said. “Then, we had the The Space Shuttle. The Space Shuttle could only take people to low-Earth orbit. Then, the Space Shuttle retired and the United States could take no one to orbit. The trend is down to nothing.”
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He continued, "People are mistaken when they think that technology just automatically improves. It does not automatically improve. It only improves if a lot of people work very hard to make it better, and actually it will, I think, by itself degrade, actually."
To be fair, NASA hasn’t forgotten how to build rockets. The agency has spent the past decade developing the Space Launch System (SLS). SLS had its first successful test last year, taking the title of “most powerful rocket in the world” from SpaceX’s Falcon Heavy, and is on course to put humans on the moon in 2025 as part of the Artemis III mission.
Nevertheless, Musk’s point about technology losing value without proactive investment and development efforts holds true. Here are the three tech stocks that consistently invest in better technology to stay ahead of the race.
Microsoft
Tech giant Microsoft (MSFT) has been aggressively expanding its lead in several key technologies over the past decade. Its acquisition of Github in 2018 cemented its position within the software development community. The acquisition of Activision Blizzard and Minecraft made it a key player in the gaming industry too.
The company’s best strategic move may ultimately prove to be the acquisition of a significant stake in OpenAI. Microsoft now reportedly has a claim on 75% of OpenAI’s profits from ChatGPT and other artificial intelligence products for the foreseeable future.
The relationship hasn't been without difficulty. The two companies were involved in a major controversy in late November, when OpenAI CEO Sam Altman was briefly ousted from his position, and appeared to be on his way to taking a job with Microsoft's in-house AI team. But within days, in a sudden reversal, he re-assumed his CEO post following an OpenAI employee revolt.
Not long afterward, OpenAI's website was altered so that Microsoft was no longer described as a "minority owner"; now the company is described on the site as having a “minority economic interest.”
Elsewhere, the company also recently launched its own custom-built semiconductor chip focused on AI applications. These investments are a key reason why Microsoft’s stock has surged over 900% since Satya Nadella took over.
The company spent $26.6 billion on R&D in 2022, an increase of 19.7% on the previous year, according to fDi Intelligence.
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Meta
Meta (META) has had a difficult few years. The stock has surged around 180% year to date but is still trading below its all-time-high of $382.18, reached in 2021. The company has faced growing pressure from regulators in the U.S., European Union, Canada and Australia, which has kept a lid on its growth potential.
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This has pushed the company to focus on internal development instead of acquisitions. In recent years, Meta has released an open-source competitor to OpenAI’s ChatGPT as well as an augmented reality headset that dominates the nascent industry.
The company announced its focus on the metaverse in 2021, but last year said its “single largest investment” is in advancing AI. These efforts demonstrate its commitment to being at the bleeding edge of technology.
The company increased its R&D spending by 43% to $35.3 billion last year, according to fDi Intelligence.
Meanwhile, the firm is robustly profitable. It generated $11.6 billion in net income in its most recent quarter. At the same time, the stock is undervalued. Meta trades at around 30 times earnings per share while Microsoft and Tesla trade at 36 and 82, respectively.
Tesla
Elon Musk’s ambitious targets for clean energy and electric vehicles have made Tesla (TSLA) a Wall Street darling. Not only was the company early to the EV race, but it also understood the value of collecting data to train its self-driving AI ahead of the competition.
Tesla’s self-driving features now rely on a wealth of data collected from its fleet over the years. Despite this, the company seems to have fallen behind. While Musk has been promising robotaxis since 2019, Waymo and Cruise already have driverless cars on the roads in some cities. Even Tesla admitted it lost the lead here.
Meanwhile, the car maker is on course to lose its EV market dominance too. Last quarter, Chinese automaker BYD was just 3,000 units short of becoming the world’s biggest seller of EVs.
This is why Tesla’s stock has lost more than 35% of its value from its peak in November 2021. At the start of this year, valuation expert Aswath Damodaran, a professor of finance at New York University, estimated the stock was worth just $130. If Musk can address these challenges and deliver on his ambitious promises, it could see a strong rebound.
Tesla's spending on R&D in 2022 was at $3.08 billion, according to fDi Intelligence. This translates to less than 4% of its annual revenue.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
