Tesla Just Lost One of Its Biggest Bears, but Is the Stock a Buy?
Key Points
After changing analysts, J.P. Morgan upgraded Tesla on the potential for future opportunities.
The stock still trades at a lofty valuation based largely on hopes and dreams.
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When it comes to Tesla (NASDAQ: TSLA), J.P. Morgan has long been one of the most bearish investment firms on Wall Street. However, that recently changed when it switched coverage to a new analyst and upgraded the stock.
With Rajat Gupta taking over for vocal Tesla bear Ryan Brinkman, the new analyst took the stock from underweight to neutral and raised the stock's price target from $145 to $475. Notably, the upgrade and huge boost in price target come just ahead of J.P. Morgan receiving a big payday from the SpaceX initial public offering (IPO). Tesla and SpaceX share a CEO in Elon Musk, and J.P. Morgan has been aggressively pitching the IPO to its clients to generate more interest in the massive offering.
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Gupta said that while Tesla stock trades at a frothy valuation, it has "unique advantages" due to its strong vertical integration between hardware and software. He said this is still largely misunderstood and that the company is at the forefront of physical artificial intelligence (AI). He sees the company having a $3.9 trillion opportunity between robotaxis, humanoid robots, electric vehicles (EV), energy storage, and infrastructure licensing.
Is the stock a buy?
The timing of the J.P. Morgan upgrade relative to the SpaceX IPO certainly raises questions about the firm's motivation for the sudden change of tune. Brinkman had covered the stock since 2015 and was a consistent bear, generally viewing the company through the lens of its primary automotive business. From this perspective, the business has always had a ridiculous valuation compared to other automaker stocks, and it was under a lot of stress last year after Musk alienated many consumers with his foray into politics, not to mention the end of federal EV subsidies.
Gupta is now using the tried-and-true bullish argument that Musk is a visionary and that the company has huge opportunities across various areas. Of course, Musk has a long, documented history of overpromising and underdelivering with autonomous driving and robotaxis, while at an event in 2024, its Optimus robots were criticized for being tele-operated by humans. There is no guarantee that any of these "opportunities" will pan out.
Tesla has never really traded on its fundamentals, and that remains the case today, with the stock trading at a forward P/E of nearly 200. I'd never suggest buying a stock solely on hopes and dreams, and with the SpaceX IPO, there will soon be two Musk-based stocks trading solely on big aspirations. If the market can't absorb two of these types of stocks, it could hurt the performance of both.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Tesla. The Motley Fool has a disclosure policy.
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