Tesla’s stock is downgraded by UBS Group, on concerns that the US electric carmaker’s shares have risen “too much, too soon” on optimism over its artificial intelligence plans.
“If market enthusiasm for AI diminishes, this may impact Tesla’s multiple,” analysts including Joseph Spak wrote in a note, cutting their rating to “sell” from “neutral”.
The downgrade is warranted “given the lack of visibility and the risk that growth opportunities materialise on a longer time horizon (or not at all),” they wrote, noting the stock is trading at more than 80 times on one-year forward earnings estimate.
UBS’s move mirrors mounting concerns over valuations of companies tied to AI technology, evidenced by a sell-off overnight of Big Tech shares. Tesla is also facing a subdued outlook on electric cars, with its sagging sales and profit.
Tesla is among the 10 most expensive stocks in the S&P 500 Index, far surpassing the rest of the megacap technology cohort. Before Thursday’s 8.4% slump, Tesla’s shares had soared 44% through Wednesday over an 11-day winning streak on bets that its billionaire founder Elon Musk can transform the company into an AI powerhouse.
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The premium that investors ascribe to Tesla for its gamut of initiatives has grown recently on AI enthusiasm and “one would need to see an even larger opportunity to justify a buy rating,” the UBS analysts wrote.
Tesla’s last run-up in its shares was supported by revenue expanding at a double-digit clip. On top of sluggish sales and heightened competition, Tesla also shook investors by delaying its keenly anticipated self-driving robotaxi plan to October from August.
UBS analysts raised their 12-month target on the stock from US$147 to US$197 ($197.52 to $264.70), implying an 18% decline from Thursday’s close. They employed a higher price-to-earnings multiple than before to arrive at the new target.
Chart: Bloomberg
