Tech investors should be smiling. The power of the digital transformation was on full display Monday, and investor reaction is bad news for pessimists.
After the stock market closed last Friday, several news outlets began reporting Tesla, Inc. (Nasdaq: TSLA) was set to recall 285,000 Chinese-made vehicles. That number represents all production from its Shanghai factory.
But Tesla isn’t recalling those cars and SUVs … let me explain.
The electric vehicle (EV) manufacturer is fixing problems with its steering wheel stalk free of charge via an over-the-air software update.
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Tesla managers have been able to transcend traditional vehicle manufacturing by abstracting much of the core functions with software.
A Tesla is more of a smart device than a car. The company regularly adds features and even improves the performance of its electric motors with seamless, overnight software updates.
It’s an important digital transformation that has commandeered a premium valuation from investors.
Shares are up 1.4% so far this week as of writing.
The thing is, digital transformation is not unique to Tesla. It’s everywhere and investors should already be realizing this firsthand.
Some digital transformation winners provide critical infrastructure, like Amazon.com, Inc. (Nasdaq: AMZN) and Microsoft Corp. (Nasdaq: MSFT).
Others — such as Alphabet Inc. (Nasdaq: GOOGL) and The Trade Desk Inc. (Nasdaq: TTD) — have already won the digital future of advertising.
Apple Inc. (Nasdaq: AAPL) makes the world’s best digital devices. Applied Materials Inc. (Nasdaq: AMAT) and Cadence Design Systems Inc. (Nasdaq: CDNS) are central to the development of next-generation semiconductors. Salesforce.com Inc. (NYSE: CRM) makes the software platform most large corporations use to engage with customers.
All these businesses are best in class and well managed.
However, they are unlikely to be disrupted by smaller competitors. Their markets are growing fast as more businesses commit to digital strategies.
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Tesla is still in its very early stages of growth, and the company is a digital transformation pioneer.
Investors have learned to look past pessimism about production and even profits. Over time, the company has started to grow into its valuation.
Digital transformation is the investment opportunity of our generation. The ongoing process is a wealth creation homerun.
Every virtual recall for a product should make investors smile a little bit. Vehicles that can be fixed remotely and silently should remind us how far the world has come … and where it is headed.
Best wishes,
Jon D. Markman
