© 2021 Getty Images / Getty Images News via Getty Images
Tesla (NASDAQ:TSLA) has been unbelievably bullish in the past few months. It was supposed to be game over for Tesla once Musk had a falling out with Trump, but TSLA stock is up nearly 120% after bottoming out that spring. It is now higher than it has ever been.
Musk was also “vindicated” by a recent ruling where the justices unanimously ruled to reinstate his 2018 Tesla compensation package. It overturned a 2024 decision that voided the $140 billion deal.
You’d expect financials to be better than ever, but that’s not the case either. Net income kept falling, and revenue increased by only 11.57% year-over-year in Q3. This is a very modest increase for a stock trading at 219 times 2026 expected earnings. You’re paying exactly 15 times forward sales, so even top-notch margins would keep this stock at expensive levels.
This begs the question: Are promises alone driving the stock? Are investors naive enough to buy into the stock in droves without at least some hard figures to reinforce their conviction?
Why are investors so bullish?
This is the hardest part to figure out, and what better way to find an answer than to ask the bulls themselves?
Wedbush analyst Dan Ives believes Tesla can reach $2 trillion. This is the same analyst who sees Palantir (NASDAQ:PLTR) becoming a $1 trillion company, but a large number of investors share his optimism. His rationale is that Tesla is in a “defining moment” due to Robotaxi and robotics. He believes AI and autonomous driving “could be worth nearly $1 trillion” and generate profits on top of Tesla’s core electric vehicle business.
You don’t have to take permabull Ives’ justification for the optimism. Bank of America justified its $471 price target due to the Robotaxi and the Optimus robot. Per its own sum-of-the-parts analysis that runs through 2040, the Robotaxi platform alone accounted for 45% of Tesla’s total valuation, with the Optimus humanoid robot at 19%.
TSLA stock has surged past that price target.
Another long-term Tesla bull, Cathie Wood, believes 90% of Tesla’s enterprise value and earnings will come from the Robotaxi business in 2029. It is important to note, though, that Wood predicted a tenfold increase in TSLA’s price all the way back in early 2023, with the bear case at $1,400. Her justification then was full self-driving technology.
All things considered, the bulls have a very mobile (pun unintended) thesis for why they see parabolic gains. If Robotaxis end up failing, Optimus or something else that may come up is very likely to take its place.
Why Tesla can indeed reach $2 trillion
Even though the numbers are not there, the bulls are putting the money where their mouth is. TSLA stock has continued climbing, and the bears have been proven dead wrong in the past year. Wood’s portfolio has Tesla as its largest holding with a 12.2% weight.
In the coming quarters, Musk can start working on the numbers as the “anti-Tesla” sentiment has cooled down. Interest rate cuts will also indirectly raise demand for vehicles as they make car loans more affordable.
If this coincides with a drawn-out AI rally that lasts through 2026, TSLA stock will be able to reach $2 trillion and beyond.
Why I still wouldn’t buy TSLA stock
While it’s true that Musk’s promises can get an even higher price tag in the coming quarters, chasing it is not worth it today. Tesla is highly vulnerable to a slowdown of the AI rally. Optimus’ presumed long-term potential relies mostly on AI’s progress on the software side. The robot’s chassis has been remotely controlled by a human in events. If Tesla figures out a way to make it truly autonomous, the sky is the limit.
This is unlikely to happen even a decade out, but bulls will keep paying for the prospect as long as AI progress in general remains swift. If not, the dashed hopes will drag TSLA stock down with it.
Then there are the Robotaxis. The potential is surely there, but so is the competition. The Waymo + Uber (NYSE:UBER) fleet is larger and more advanced at the moment. Theoretically, Tesla can still dominate if it could make millions of its FSD-capable cars into a Robotaxi fleet overnight.
Paying for TSLA stock as if that has already happened is still not a good idea, at least in my opinion.