Tesla ends 11 consecutive gains, UBS continues to pour cold water: it rose too much before
Tesla's stock price ended its 11-day consecutive rise. UBS downgraded Tesla's rating from "Neutral" to "Sell" and raised the target price to $197. UBS believes that Tesla's stock has risen too quickly and is overly optimistic about its artificial intelligence plans. Tesla's electric vehicle sales and profits have declined, and investors are not optimistic about its prospects. The rise in Tesla's stock price is attributed to revenue growth, but the delay in the autonomous driving robotaxi plan has shocked investors. Tesla has become one of the most expensive stocks in the S&P 500 index. UBS analysts believe that further evidence is needed to justify a buy rating
According to the VETR financial news app, UBS has downgraded Tesla (TSLA.US) from "Neutral" to "Sell", raising the target price from $147 to $197, still a 18% drop from Thursday's closing price. UBS pointed out that the stock of this American electric car manufacturer has risen "too much, too fast" due to optimism about its artificial intelligence (AI) plans. The target price adjustment is related to the adoption of a higher price-earnings ratio.
UBS analysts, including Joseph Spak, stated: "If market enthusiasm for artificial intelligence wanes, it could affect Tesla's price-earnings ratio."
They stated, "Given the lack of visibility and the growth opportunities may take a longer time to materialize (or may not materialize at all)," the downgrade is reasonable. They noted that the stock's expected price-earnings ratio based on future year earnings exceeds 80 times.
UBS's move reflects growing concerns about the valuation of companies related to artificial intelligence technology, as evidenced by the overnight sell-off of large US tech stocks. The outlook for Tesla's electric vehicles is also not optimistic, with declining sales and profits.
Tesla is one of the top 10 most expensive stocks in the S&P 500 index, far exceeding other large tech stocks. Prior to the 8.4% plunge on Thursday, Tesla's stock had risen 44% as of Wednesday, climbing for 11 consecutive days, as investors bet that Elon Musk could turn the company into an AI giant.
UBS analysts stated that due to enthusiasm for artificial intelligence, investors are giving Tesla a higher premium for its series of initiatives, but "larger opportunities are still needed to prove that a buy rating is justified."
Tesla's recent stock price surge has been driven by its revenue growing at a double-digit pace. In addition to sluggish sales and increasing competition, Tesla also shocked investors by delaying its highly anticipated autonomous driving robotaxi program from August to October.
According to a report from DataTrek Morning Briefing, currently 60% to 90% of the valuation of large US tech stocks is based on future growth expectations, while this ratio for the S&P 500 index is around 55%. However, for Tesla, 91% of its valuation is based on future earnings, with DataTrek co-founder Nicholas Colas calling it a "faith-based stock"