Tesla’s Rally To Record High Is Leaving Big Tech Peers Behind

There’s been no dearth of sell signals for Tesla Inc. It’s facing a potential sales halt in California, an electric vehicle slowdown across the US and is losing market share in China and Europe.

But all that hasn’t deterred investors excited about its work with artificial intelligence and autonomous-driving development efforts. The carmaker’s shares have rallied 25% since a low on Nov. 21, notching a record for the first time this year. The stock has also outpaced the Bloomberg Magnificent Seven Index, which is up less than 6% over the same period.

The optimism centers around Chief Executive Officer Elon Musk’s aspiration to turn Tesla into a powerhouse in robotics and AI, the booming technology that has driven global stocks to record highs. The company’s push into autonomous vehicles has drawn praise from analysts, with some saying Tesla will be a “game changer” in this field.

“Tesla is showcasing that they are close to monetizing on AI,” said Moritz Kronenberger, a portfolio manager at Union Investment, in part pointing to the company’s ambitions to make robots and self-driving taxis. “With the newly announced narratives, it has become more and more a potential AI winner.”

Musk’s other initiatives include a potential initial public offering of rocket and satellite maker SpaceX, a business he said has been converging with Tesla. Sentiment about autonomous cars also is likely to be boosted by Waymo, Alphabet Inc.’s autonomous self-driving unit, holding discussions to raise more than $15 billion at a valuation near $100 billion.

“It’s clearly SpaceX: the beauty of Tesla is that retail investors amalgamate everything,” said Jacques Aurelien Marcireau, co-head of equities at Edmond de Rothschild Asset Management. “Investors tend to leverage Tesla as a proxy for the Musk Galaxy despite the very low real linkage in terms of economic interest.”

Still, Tesla faces several hurdles in its business outlook. The company’s sales in California are poised to be suspended for 30 days if it doesn’t change marketing practices that allegedly mislead consumers about its driver-assistance technology. Meanwhile, the latest quarterly results disappointed investors as rising costs undermined a record quarter for vehicle sales.

Karen Kharmandarian, senior equity investment manager at Thematics AM, said Tesla’s lofty valuations also reflect any positive news in the short term. The stock trades at a whopping 223 times forward earnings, well above a five-year average of 94, according to data compiled by Bloomberg. The broader Bloomberg Magnificent Seven Index carries a price-to-earnings valuation of 31.

“I’m definitely not a buyer: the multiples are just crazy with earnings that keep on disappointing,” said Fares Hendi, portfolio manager at Societe de Gestion Prevoir.