Tesla AI valuation ‘detached from reality’
Elon Musk wants people to invest in Tesla Inc. only if they trust it can make self-driving cars. Trouble is, the stock already trades at levels that assume it has cracked that, and then some.
The electric-vehicle maker’s shares are considerably more expensive than those of Nvidia Corp. and Microsoft Corp. — two megacap companies widely seen as artificial-intelligence pioneers. Yet while earnings estimates for both of these tech giants are rising, for Tesla, they are plummeting because EV demand is slowing.
“Musk has always wanted Tesla to be viewed as more than an EV maker, but that works when there is growth in the core business,” David Mazza at Roundhill Financial Inc., said. “When your core business is declining, that narrative is a lot harder, which is why I think the multiple right now is detached from reality, and the stock is not cheap despite coming down a lot this year.”
Tesla’s stock trades at 63 times forward earnings, compared to Nvidia’s 33 and Microsoft’s 30. And as analysts’ expectations about Tesla’s profits continue to drop — especially after a first-quarter report that missed across the board — the valuation multiple just keeps getting steeper.
The shares were caught in a free fall until just last week, amid nervousness about Tesla’s growth prospects. But the quarterly earnings call, where Musk made his bold pronouncement about autonomous vehicles and AI, marked a turning point for the stock. Since the results, it has soared more than 24 per cent, helped by news that the company is closer to getting its driver-assistance software approved for launch in China.
But fully self-driving cars are a technology that most analysts and experts say is likely years, if not decades, away from full-scale commercial adoption.
Tesla is struggling with weak demand for EVS and just reported its first quarterly sales decline since 2020. On top of that, it seems to be stepping away from projects once seen as a key strategic advantage for the company — such as its charging network.
In contrast, both Nvidia and Microsoft have proven their AI credentials. As a chipmaker, Nvidia dominates the market for accelerators that power data centres running complex computing tasks needed for AI development. Microsoft, with its large bet on Openai Opco LLC, is already experiencing demand for its AI offerings boost sales and profit.
Tesla’s market capitalization of US$574 billion — bigger than the combined value of GM, Ford and Toyota — is becoming further unmoored from its core EV operations. According to Evercore Inc., less than half of the firm’s market capitalization is now based on the auto business.
“Tesla is a faith-based stock,” Steve Sosnick at Interactive Brokers LLC, said. “It is really about investors’ faith in Elon Musk’s ability to deliver visionary ideas. And for most of this company’s history, that faith has been richly rewarded.”