Tesla's stock price surged 4%, expected to break new highs, driven by AI narratives

Tesla's stock price hits a record high, supported by AI narrative underpinning its trillion-dollar valuation.

On Monday, Tesla's stock price continued its upward trend from last Friday, rising as much as 4.9% in early trading, reaching a peak of $481.37. If the gains persist until the close, it is expected to set a new high for the first time since December 2024.

For this electric vehicle manufacturer, it has been a difficult recovery. Since the market turmoil triggered by Trump's tariff offensive in early April, its stock price has more than doubled.

However, analysts expect the company's sales performance to significantly slow down in the future, with some industry leaders and investors criticizing the stock as "overvalued." Irene Tunkel, Chief U.S. Equity Strategist at BCA Research, stated:

In my view, Tesla is in a bubble territory.

Nonetheless, Matt Britzman, Senior Equity Analyst at Hargreaves Lansdown, pointed out:

Investors need to remember that while strong fundamental business still plays a role, it is no longer the main driver. Tesla's stock trading is more based on sentiment rather than fundamentals, with the AI narrative supporting its trillion-dollar valuation.

Weak fundamentals, sales outlook under pressure

Tesla's fundamentals are weak this year.

Wallstreetcn mentioned that the company's third-quarter performance released in October disappointed investors, as rising costs undermined record vehicle sales.

The surge in sales was mainly due to consumers rushing to place orders before the expiration of the $7,500 federal electric vehicle tax credit policy at the end of September.

Analysts expect the company's sales to significantly slow down in the upcoming period. Ford CEO Jim Farley stated that due to the Trump administration's policies favoring fuel vehicles, the market share of electric vehicles in the U.S. will plummet from about 10% to around 5%.

Notable investor Michael Burry criticized the stock as "overvalued" earlier this month.

Earlier this year, Musk's political moves raised concerns that his interest in running the automaker might be waning. The company attempted to stimulate sales by launching cheaper popular models, but this move was also questioned.

These concerns, coupled with Trump's tariff policies and Musk's public break with the president, have put pressure on the company's stock price, which fell by as much as 50% from its December peak by April.

Shift towards robotics and AI sparks market frenzy

Since then, Tesla's stock price has staged a remarkable turnaround, once again showcasing Musk's ability to drive investor sentiment.

Musk is attempting to reposition the electric vehicle manufacturer as a robotics and AI giant, a move seen by some as visionary, while others view it as a distraction from its core business This shift coincides with the AI boom sweeping the market, driving stocks from tech giants like Google to Oracle to new highs.

Traders are currently buying into the vision sold by Musk and are increasingly bullish on Tesla's AI efforts. In November, Tesla investors approved the CEO's trillion-dollar compensation plan, indicating their confidence in Musk's vision.

Dan Ives of Wedbush raised the target price from $500 to $600, the highest on Wall Street, on September 26, stating that the company could become a "game changer" in the AI field.

However, there has been ongoing controversy over a Tesla bubble in the market.

Irene Tunkel, Chief U.S. Equity Strategist at BCA Research, stated:

In my view, Tesla remains a darling of retail investors and is an example of irrational exuberance in an already overheated stock market. I believe Tesla is in bubble territory