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Tesla Stock (TSLA): AI Hype Drives Frothy Market

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Shares of Tesla (NASDAQ:TSLA) have been red-hot lately, soaring more than 137% year-to-date. Undoubtedly, as the AI wave spreads to Tesla, the stakes (and investor expectations) are climbing higher again. For years, many upbeat investors have viewed Tesla as more of a high-tech innovator than just another run-of-the-mill auto company.

CEO Elon Musk is a genius pioneer and a visionary, and if he says robotaxis are coming, investors have every reason to believe the man. After all, those who doubted him have been left sitting on the sidelines as the EV juggernaut saw its market cap swell in size.

Though I believe Tesla stock is worthy of a tech multiple, I’m not so sure the recent blast of AI enthusiasm is warranted. Tesla’s self-driving ambitions are really nothing new. The rise of ChatGPT and other AI innovators may have caused money to chase anything remotely touching AI, and if those much-awaited autonomous Tesla robotaxis aren’t dominating the roads in a sufficient timeframe, Tesla stock may be in a spot to backtrack on recent gains.

Elon Musk himself said Tesla’s market cap is tied to autonomy. For years, self-driving cars have been one of the holy grails of AI technology. Thus far, it’s proven quite difficult to shift gears to full autonomy. Though Tesla has the data advantage and competent tech talent to get the job done, the robotaxi timeline, I believe, remains as hazy as ever. Personally, I wouldn’t chase Tesla stock after a hot run on old news that seems to be getting new life. For that reason, I’m taking on a neutral stance on shares of Tesla.

Tesla Stock: AI Hype May be Getting Out of Hand

Tesla could have a lot to gain in the AI race if it can get self-driving tech where it needs to be. Just ask Cathie Wood, who touted Tesla as “one of the biggest AI opportunities out there.” Tesla certainly deserves some “AI premium” on its share price, but how much remains the billion-dollar question.

Tesla isn’t the only competitor in the space. AI kingpin and ad-tech behemoth Alphabet (NASDAQ:GOOGL) has Waymo, which may or may not be in a spot to pull ahead of Tesla and the rest of the pack.

The real question is whether an AI-heavy software company can outcompete an auto company with unmatched tech savviness. I’m unsure which firm has the edge at this juncture. However, I do find the valuation of GOOGL stock (27.4 times trailing price-to-earnings) to be far more attractive.

At writing, TSLA stock trades at 77.8 times trailing price-to-earnings. That’s steep for an auto company or a technology company. At $256 and change, there’s a pretty high bar set ahead of Tesla stock. With a high bar comes a high risk of coming short.

Tesla Looks Like a Top Firm That Could Solve Autonomous Driving

Even if Tesla is one of the first to solve the autonomous-driving problem, rivals may not be too far behind. Further, the race for full-autonomous driving may not be over once we have self-driving cars dominating the streets. Though I do not doubt Tesla’s autonomous-driving tech, it’s hard to tell whether the robotaxi service will take off in just a few years or if it’ll take a while longer than that.

Without greater clarity on the autonomy timeline, I find it tough to value Tesla stock. RBC analyst Tom Narayan believes 70% of Tesla’s valuation is centered on autonomous tech. Indeed, there could be a lot to gain if Tesla is able to keep up with such upbeat analysts.

After such an impressive run, even Cathie Wood — one of Tesla’s biggest believers — appears more than willing to trim her stake. Just last week, news broke that ARK Invest sold around 393,000 worth of Tesla shares.

Is TSLA Stock a Buy, According to Analysts?

Turning to Wall Street, TSLA stock comes in as a Moderate Buy. Out of 31 analyst ratings, there are 14 Buys, 12 Holds, and five Sells. The average Tesla stock price target is $216.46, implying downside potential of 15.6%. Analyst price targets range from a low of $85.00 per share to a high of $335.00 per share.

The Bottom Line on TSLA Shares

It’s not just AI hype that’s driven up Tesla stock of late. Undoubtedly, excitement over the company’s charging network and bullish analyst notes have also been rally fuel. For the most part, though, I believe any additional upside from here could be the result of AI FOMO (fear of missing out).

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