Tesla Loses Valuation Race to Berkshire as Growth Stocks Sputter

(Bloomberg) — After a $360 billion rout, Tesla Inc. has just been supplanted by old-economy stalwart Berkshire Hathaway Inc. as the fifth-biggest company in the S&P 500 Index.

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The Elon Musk-led electric-vehicle maker’s shares closed with a market valuation of $604 billion Tuesday, versus nearly $645 billion for Warren Buffett’s conglomerate, underscoring this year’s great economic upheaval as former high-flying technology stocks plunge anew while industrial companies outperform.

A former member of the $1 trillion capitalization club as recently as this April, Tesla has succumbed to a fresh drawdown since September. Thank a hawkish Federal Reserve that’s sending growth stocks ever lower — and the backlash caused by Musk’s mercurial acquisition of social-media giant Twitter Inc.

“Berkshire has branded itself as an American bedrock, a place to hide when one is uncertain about the future,” said Catherine Faddis, chief investment officer of Grace Capital.

The US stock market is witnessing the end of an era when richly priced tech companies with aggressive future growth plans could do no wrong. Rising interest rates are spurring investors to bid up value firms that offer stable cash flows in the here and now, while the relative resilience of the industrial and consumption cycle is proving a boon for steady and stable businesses.

The Dow Jones Industrial Average is far outperforming both the benchmark S&P 500 Index and the technology-heavy Nasdaq 100 Index, while Tesla’s 46% slide this year compares with a just a 2% drop for Berkshire.

Meanwhile the four big technology companies — Apple Inc., Microsoft Corp., Google-parent Alphabet Inc. and Amazon.com Inc. — have all fallen at least 20% so far in 2022.

Faddis also notes that Berkshire is hard to value in the current economic climate, given its holdings in growth companies like Apple and Microsoft, in addition to value stocks like American Express. The conglomerate also holds positions in privately held entities that are involved in everything from insurance and railroads to electric utilities.

“This is a great representation of slow and steady wins the race in the current environment,” said Arthur Hogan, chief market strategist at B. Riley Wealth. “Value has underperformed growth for the better part of a decade, but the tide has certainly shifted this year and likely will continue into next year.”

(Updates valuations in first and second paragraphs)

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