Why Tesla and Amazon Stock Prices Are Skyrocketing and Google and Facebook Are Nosediving

Richard Drew/AP / Shutterstock.com

Richard Drew/AP / Shutterstock.com

Unfortunately, it’s never quite possible to know with certainty why a stock is rising or falling. After all, it involves the individual choices of thousands — maybe millions — of different investors making their own decisions. That said, it is possible to infer some broad strokes of what might be driving people to like or leave a stock. And with the big tech stocks beginning to show some real divergence in recent months, that has plenty of people beginning to wonder why.

So what is it that has been going so well for Tesla and Amazon in the markets that simply hasn’t been for Facebook and Alphabet (parent company of Google)? Here’s a closer look at some of the factors that could be driving the movement in price for each stock.

Last updated: Oct. 8, 2020
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Here are some of the reasons that could be motivating the massive run-up in Tesla’s stock.

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1. Law of the Greater Fool

One reason why Tesla stock could be spiking right now is what’s known as the law of the greater fool. That concept says that no matter how much you might overpay for something, as long as someone else comes around ready to pay more (the greater fool), you haven’t really overpaid. As such, plenty of stock investors might have seen Tesla’s stock rocketing and tried to jump on board for their own gain.

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2. Bubble

Any time a stock starts to take off like Tesla has, you’ll hear people say the “B” word. Only time will tell whether or not this breakout is investors accurately assessing the company’s potential in the long run or if it’s overenthusiasm for what seems like the next big thing. However, the pattern of the classic bubble would indicate that there’s always a real chance that a fast run-up in price is a sign that people are just getting swept up with the crowd.

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3. Actual Earnings

Regardless of whether or not they’re already priced in, Tesla has produced some earnings. In fact, the company is in the black over the last year — something that’s never been true for it. With actual profits being produced, Tesla’s stock has been on the rise. It’s not clear now that they’ll keep rising enough to justify the current valuation, but it shows progress is a way that has clearly mattered to many investors.

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4. Dumb Money

There’s no way of knowing for sure just who is buying how much Tesla stock at which price. However, some would hypothesize that at least some of the bump is because Elon Musk’s high-flying innovation act plays best among novice investors. If you’re less familiar with the stock market, you might see stocks as more like trading cards without scrutinizing the financials or valuation in a more traditional way. You’re also more likely to react to headlines and pull the trigger on a trade sooner than it makes sense. It’s why the classic term for the individual investor on Wall Street is “dumb money.”

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Here are some of the reasons why the nation’s biggest online retailer is having such a good year.

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1. Online Retail Booming

Clearly, the pandemic has pushed a whole new generation of shoppers online. Amazon might be dominant in the online retail world, but prior to the pandemic about 90% of retail still took place in person. Amazon was growing fast, but the move online was still going at its own place. The pandemic, however, likely pushed a whole host of new shoppers to start exploring online shopping for their retail solutions. Competitors like Walmart are still playing catch up, so getting the time frame to accelerate only plays to Amazon’s advantage.

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2. A Growth Stock That’s Really Growing

Amazon’s valuation might be soaring to levels that are hard to justify, but it’s not as though the company is without big profits. For most stocks with as wide open a future as Amazon has, you have to accept a lot of additional risks because the profits aren’t there yet. Amazon, though, is a rare combination of having sky-high potential along with the present-day results that serve as a pretty hefty proof of concept. The company has, over the last 12 months, more than quadrupled its profits from the full year of 2017, coming to over $13 billion.

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These are a few of the potential factors that could be playing a role in Facebook’s stock slide.

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1. Too Much Bad Press

The days when Facebook could proudly point toward its role in the Arab Spring and claim a broader societal good behind its service are in the review mirror. Today, Facebook is the most powerful tool being used by everyone from white supremacists to the Russian spies trying to use white supremacists. The way that the service has been used to spread misinformation and hate speech has brought it under the microscope and shifted the perception of the company in the broader public. That loss of consumer confidence might ultimately cost Facebook where it counts, and that could be spooking some investors.

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2. Antitrust Sentiments Could Mean a Breakup

Breaking up big tech was a cause célèbre during the Democratic primary. And while it hasn’t translated as clearly to rhetoric during the general election, it’s also possible that investors are spooked by the possibility of Facebook being forced to spin off Instagram and WhatsApp as part of an antitrust push. And if Democrats should win control of both houses of Congress and the White House, that could mean this day of reckoning could be coming sooner rather than later.

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3. Is Facebook a Public Utility? Should It Be?

Another question on the table for some is whether Facebook can ever really exist in a competitive environment. By virtue of building its audience rapidly in the early days of social media, Facebook has enjoyed a very long legacy to its first-mover’s advantage. So long, in fact, that some question whether the company shouldn’t simply be converted to a public utility. After all, as long as everyone you know is on Facebook, you’re unlikely to leave the platform regardless of how you feel about the platform itself — even if you clearly prefer another social media site. All this is to say that the more extreme version of breaking up Facebook is to regulate it more like a power company — one where the company accepts strict regulations in exchange for essentially having a captive market for its services.

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4. Growth Might Be Stalling

In the stock market, growth is everything. At least it is to many. That’s why you see stock in companies like Tesla soaring to new highs even when their actual business has barely started to taxi onto the runway. As long as they can keep posting big growth in revenue, the promise of that brighter future will typically have investors rushing to get in early. Facebook, though, is starting to look like earnings might be hitting a plateau. Profits actually fell slightly year-over-year in 2019, and it looks like it could be under the 2018 figure again in 2020. If the company is reaching the end of its growth cycle, that could have growth investors beginning to consider taking profits and looking for the next big score.

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Here are some of the reasons why stock in this tech giant isn’t doing so well. So you don’t have to, ahem, Google it.


1. Markets Less Sanguine on Digital Advertising?

Google and Facebook are the two largest players in the same space: online ads. So, the fact that they’re both seeing their stocks slide could be a sign that some investors aren’t as high on digital advertising as they once were — at least not from the two biggest players. There are plenty of other possible motivations (as are detailed here), but it’s hard not to notice that they’re both struggling at roughly the same time.

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2. Also an Antitrust Target

Like Facebook, Google is squarely in the crosshairs of those who accuse it of holding a monopoly. Like Facebook, precisely how you “break up” a company like Alphabet is unclear, but it could very likely mean spinning off YouTube. Regardless of how it happens, if government actors decide that Alphabet is preventing real competition, that’s probably going to mean bad things for its stock in the long run.

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