2 Beaten-Down Stocks With Massive Upside Potential

Over the past decade, Tesla (NASDAQ: TSLA) and Meta Platforms (NASDAQ: META) have delivered market-beating returns. But some may argue that there is little upside left for either stock. Tesla and Meta have underperformed broader equities this year, and as they invest heavily in artificial intelligence (AI), we may see their margins compressing, leading to even worse stock market performances, or so the argument goes. However, despite this potential problem, there are good reasons to think Tesla and Meta Platforms have significant long-term upside. Read on to find out more.

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1. Tesla

Tesla is a somewhat risky stock. The company's core electric vehicle (EV) business is facing more competition in the U.S., with Rivian recently launching an alternative to its best-selling Model Y. China-based automakers are also making significant strides abroad. Meanwhile, Tesla is trading at 178.6x forward earnings. The stock could contract over the next few years if it fails to make progress where it matters most. And the market is no longer primarily focused on Tesla's EV segment. Instead, investors and analysts are paying close attention to the company's robotaxi service that could transform its business.

A successful robotaxi operation would increase high-margin revenue from ride-fee charges. These could be fairly substantial across the company's entire fleet. Instead of sitting idle for most of the day, Tesla's EVs could be active for significant portions of a 24-hour period and would only need "rest" when charging, for maintenance purposes, or while waiting for customers to order rides. At scale, we could be talking about hundreds of thousands, or perhaps even millions of rides per day. Given this potential opportunity, it's not surprising that many investors are excited about Tesla's future. The company's shares recently jumped after it announced it would launch robotaxis in Miami.

But there is even more to Tesla's business. The EV maker is also working on the next-gen version of its humanoid robot, Optimus 3. Dominating this market could be yet another massive opportunity for Tesla, as humanoid robots capable of performing many tasks as well as humans could see significant demand from individual consumers and especially corporations looking to replace some of their workforce. Tesla will certainly add high-margin revenue streams to its robots, including remote software updates, subscriptions, and premium capabilities.

Tesla's shares could soar over the next decade if its robotaxi and humanoid robotics ambitions materialize. However, there is plenty of downside risk as well, including the possibility that the company fails to gain a foothold in the robotaxi industry due to competition or regulatory setbacks, among other risks. It's important to keep that in mind and invest accordingly.

2. Meta Platforms

Meta Platforms' advertising business is performing well. It has even improved in recent quarters thanks to artificial intelligence (AI). The company's short-form video platforms on Facebook and Instagram, coupled with AI-powered algorithms that keep users glued to their screens, have helped boost engagement across its websites and apps, leading to higher ad demand. In the first quarter, the company's revenue increased by 33% year over year to $56.3 billion. Its earnings per share came in at $10.44, 62% higher than the year-ago period.

So, although many fear that Meta Platforms' AI-related spending won't pay off, it is already doing so. And there is more where that came from. According to reports, the social media giant is exploring launching a cloud computing business. The company could sell excess AI computing capacity to other corporations. This could be a game changer for Meta Platforms. Several companies are seeing strong success within this niche, and it should expand significantly over the medium term, along with AI infrastructure spending.

Meanwhile, Meta Platforms has significant strengths that could drive improved financial results. The company ended the first quarter with 3.56 billion daily active users. This vast ecosystem can enable the company to successfully launch new monetization opportunities, as it has in the past. Meta's Threads, a competitor to X (formerly Twitter), has grown rapidly and is on track to become the leader in its category, according to management. Meta Platforms' WhatsApp paid messaging and subscription services still make up a tiny portion of its revenue, but they are growing at a good clip.

Meta's robust core business and strong competitive advantage from its brand name and network effects make the stock attractive, and the company's growth path beyond advertising could transform the business and send its share price soaring.

Prosper Junior Bakiny has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Tesla. The Motley Fool has a disclosure policy.