This week, earnings offer a mirror to tech’s contradictions. Tesla (TSLA: NASDAQ) reports amid graffiti, lawsuits, and slumping sales—yet its influence still bends policy. ServiceNow (NOW: NYSE) tries to hold its AI leadership as others close in. Alphabet (GOOG: NASDAQ) will surely have to comment about a pivotal antitrust ruling. And Intel (INTC: NASDAQ) is caught between D.C.'s manufacturing push and the pull against the Chips Act by the Trump administrations. Taken together, these results may say more about the government’s role in tech than any White House press conference.

Last week, Elliott Management’s investment in Hewlett Packard Enterprise (HPE: NYSE) looked like a textbook activist play—until it didn’t. Rather than breaking it apart, Elliott seems to think the company is finally building something worth owning. Either way, the signal is clear: AI infrastructure is now boardroom strategy.

As always, I’m focused on three things:
1) Technology-driven change;
2) the latest in innovation and startup trends, and;
3) stock fraud.

Companies Discussed

In This Note:

• Companies Discussed

• Elliott ❤️s HPE & The DOJ Should Too

• Tweet O’ The Week

• Epistrophy In The News

• 📆 of Epistrophy Events

• Availability This Week

Tesla: More Model Why?

Tesla’s (TSLA: NASDAQ) Q1 earnings arrive under the shadow of a consequential fourth quarter. Three months ago, the company reported $25.71 billion in the quarter, up just 3% year over year, and net income of $2.32 billion—down sharply from 2023. Operating margins compressed to 6.2%, the lowest since the pandemic. We think that’s not a short-term blip. It’s a reflection of the erosion happening under Tesla’s hood.

Deliveries fell. Not in absolute terms—Tesla moved 495,570 vehicles in Q4, a record quarterly haul—but in context. Annual deliveries of 1.81 million units fell short of Elon Musk’s 2 million target, and for the first time, were down year over year. 

Global EV demand is rising. Tesla’s growth is not. Its U.S. market share dropped from 51% to 43% in 2024. In Europe, Tesla lost share every quarter. In China, the world’s largest EV market, Tesla’s Q4 sales fell 14% while BYD (1211: HK) expanded its lead. Musk’s answer? Another round of price cuts in January, this time slashing Model 3 and Model Y prices by 8% in China. That helped volume, but at what cost? Average selling prices fell. Margins shrank. Investors were told to expect a “blip.” The filings suggest something more permanent.

The idea that Tesla maintains an industry-leading cost structure deserves scrutiny. Its direct sales model avoids traditional dealer markups but also absorbs costs others offload. Fully accounted SG&A—adjusted to reflect warranty, service, and retail center expenses—shows Tesla spending $4,280 per vehicle, compared with $3,650 at General Motors (GM: NYSE) and $3,970 at Ford (F: NYSE). The service network is underwater: a -4.2% operating margin in 2024 and wait times that reportedly  jumped 42% year over year. Warranty accruals are up, topping 3.5% of automotive revenue—120 basis points above industry average. And quality remains an open question. In January, Tesla recalled 1.1 million vehicles in China over software defects.

Battery edge? Gone. Tesla’s Q4 average pack-level cost hit $121/kWh, no longer meaningfully better than industry peers. Fremont and Shanghai plants saw double-digit declines in capacity utilization. Berlin assembly lags the European average by 15%. These aren’t one-offs. They suggest systemic inefficiency creeping into the manufacturing process—precisely where Tesla once claimed to lead.

Meanwhile, the company’s dependency on regulatory credits is still propping up profitability. Tesla booked $692 million in credit sales in Q4. That’s roughly 30% of quarterly net income. Without them, free cash flow would look materially worse (see the chart above). Musk has spent years positioning himself as a free-market champion, but his business model is heavily subsidized. From the Department of Energy loans that kept Tesla alive to ongoing factory incentives and state-level tax breaks, government money has been a persistent pillar. Even now, Tesla lobbies for continued EV incentives in Europe and Asia, even as Musk rails against subsidies for competitors.

Which brings us to the political minefield Tesla is now navigating. Elon Musk’s alignment with D.O.G.E. and the most unpopular of Trumps policies has alienated the very buyers who once defined Tesla’s base. Online survey show declining purchase intent, quality perception and reputation scores in both the U.S. and Europe.

The problem isn’t just politics. It’s the fragility of a brand that once sold aspiration and now sells backlash. Tesla has promised everything—a cheaper car, a robotaxi, a robot, a semi—but delivered little. The pipeline is vapor. Model S and X are aging. Model 3 and Y are stale. The Cybertruck, finally shipping, is an expensive curiosity that doesn’t appear scale. The result: falling purchase consideration and rising inventory. Tesla may still be growing, but the halo has dimmed.

Q1 will test how much further the narrative can stretch. Tesla will likely post another high-volume quarter, supported by aggressive discounting. But revenue growth won’t match. Margins will be thin. Credit sales may again paper over operational weaknesses. And the brand damage—especially among affluent, coastal buyers—will take longer to measure, but it’s real.

Tesla’s strategic vulnerabilities are no longer hypothetical. The cost lead is evaporating. The product pipeline is years late. Service and support are subscale. Competitors are catching up on price, range, and design—and they aren’t alienating half their customers in the process.

That’s what makes this week’s earnings report so critical.

Elliott ❤️s HPE & The DOJ Should Too

Elliott Investment Management has placed a $1.5 billion bet on Hewlett Packard Enterprise (HPE: NYSE), recognizing potential in HPE’s artificial intelligence initiatives that much of the market may be overlooking.

Elliott, known for shaking complacency from tech giants like Salesforce (CRM: NYSE), SAP (SAP: NYSE), and Dell Technologies (DELL: NYSE), sees untapped value in HPE’s quietly growing AI infrastructure business, positioning itself as a pivotal player capable of reshaping the AI hardware landscape.

Historically, when Elliott invests significantly, strategic shifts or management shake-ups usually follow, often resulting in enhanced shareholder value. 

Emerging from the Hewlett-Packard breakup in 2015, HPE was initially underestimated as a contender in AI infrastructure. However, in the past two years, HPE has methodically transformed itself into a credible force in AI hardware. Its ambitious $14 billion proposed acquisition of Juniper Networks (JNPR: NYSE)—currently stalled by litigation from the Department of Justice (DOJ)—is central to its AI strategy. Juniper’s Mist AI platform, though often underappreciated, offers tangible competitive advantages in predictive analytics and automated troubleshooting, having significantly reduced network downtime in practical deployments.

HPE CEO Antonio Neri strongly criticized the DOJ’s antitrust objections as “fundamentally flawed,” emphasizing the strategic importance of the merger. Neri has promised annual synergies of $450 million within three years of completing the deal, banking heavily on Juniper’s AI integration capabilities.

Yet HPE’s path has not been easy. President Trump’s tariff regime—highlighted by baseline duties on imports and heightened tariffs on Chinese goods—adds significant economic headwinds, particularly pressuring HPE’s server margins. Still, HPE’s global supply chain and clever decision to maintain substantial operations in Mexico offer significant advantages, given the country's inclusion in the USMCA trade agreement. This strategic positioning helps mitigate some of the tariff impacts and strengthens HPE’s competitive stance.

Operational missteps also loom large. Despite impressive revenue growth, server operating margins recently disappointed – the industry-wide GPU transition from Nvidia’s Hopper to the newer Blackwell GPUs has exacerbated these issues. Yet despite these setbacks, AI demand remains robust. HPE booked $1.6 billion in AI system orders last quarter alone, accumulating an $8.3 billion AI backlog, a strong indicator of future revenue potential.

Enterprise AI, a particularly promising segment for HPE, saw a 40% year-over-year increase in orders. This segment, characterized by deployments in practical AI applications like inferencing, generates predictable, high-margin revenue streams, particularly through HPE’s successful GreenLake subscription service, now exceeding $2 billion in annual recurring revenue.

Competitively, HPE’s strategic moves have significantly improved its positioning relative to rivals such as Dell Technologies and Cisco. Should the Juniper acquisition clear regulatory hurdles, the combined entity could considerably challenge Cisco’s entrenched networking dominance.

Key to the Elliot investment could be a defeat of the DOJ’s flawed opposition to the Juniper deal. The DOJ’s stance on the HPE-Juniper merger fundamentally misunderstands the competitive dynamics of the wireless LAN and networking markets. The DOJ argues that combining HPE and Juniper would significantly limit competition, ignoring the reality that Cisco (CSCO: NASDAQ) already holds a dominant market share of roughly 50%. Blocking this merger inadvertently protects Cisco’s entrenched position, stifling rather than fostering competition.

Furthermore, the DOJ overlooks the rapidly evolving nature of network infrastructure driven by AI technologies. Juniper’s Mist AI platform, a key asset in this acquisition, represents precisely the sort of innovation that enhances market competition. Preventing its combination with HPE’s extensive hardware resources and global reach deprives customers of substantial efficiency gains and cost reductions, ultimately harming rather than helping the consumer base.

Finally, the DOJ’s analysis fails to appreciate the distinct customer segments served by Juniper and HPE. The merger expands capabilities without significant overlap, especially considering Juniper’s strength in enterprise networking and HPE’s historical focus on hybrid cloud infrastructure. By misunderstanding the complementary nature of these offerings, the DOJ risks obstructing a merger that could significantly advance technological innovation and competitive balance in the broader market.

Looking ahead, Elliott’s involvement, combined with the strategic integration of Juniper’s AI capabilities and renewed operational discipline, positions HPE as a compelling player in AI infrastructure. Investors, long dismissive of HPE’s relevance in the AI space, may soon find reason to reconsider their stance.

Tweet O’ The Week

Epistrophy In The News

On BNN Bloomberg, we unpacked the week’s most incredible thing: the Trump administration taking an idea from the Biden administration and running with it: new restrictions on Nvidia and AMD (AMD: NYSE). (Here is that hit.)

On Schwab Network, we similarly tackled the selloff in AI semis. The problem isn’t sentiment—it’s saturation. Watch that segment here.

📆 of Epistrophy Events

Availability This Week

I’ll be in New York through Monday, airborne Tuesday, and then working from San Francisco ahead of the RSA Conference. If you're attending RSA, let’s connect—I'll be focused on zero-trust implementations and cloud security vendors with real traction (not just booths and buzzwords).

Written reports are available to clients, with video summaries on YouTube, and of course our popular summaries of the summaries on Instagram, TikTok, and YouTubeShorts.