Should You Buy Tesla Stock While It's Below $627?

Key Points

• At a $2 trillion market cap, with the current share count, Tesla's stock price would be around $627.

• One exciting growth initiative has analysts excited.

• These 10 stocks could mint the next wave of millionaires ›

According to Dan Ives -- a popular sell-side analyst on Wall Street -- Tesla (NASDAQ: TSLA) will become a $2 trillion business by the end of 2026. That market cap roughly translates to a stock price of around $627 given the company's current shares. That's 44% higher than the stock's price at market close on Sept. 22.

Given Tesla's potential over the next 15 months, should you be loading up on Tesla stock? I'd say only if you're extremely bullish on Tesla's new business segment, and there's reason not to be overly excited.

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Robotaxis could be a $1 trillion opportunity for Tesla

What makes Ives so bullish on Tesla stock? After years of heavy investment to advance self-driving capabilities, Tesla launched a pilot version of its robotaxi service in Austin, Texas, earlier this year. Ives was present for the launch, experiencing the service firsthand. He called the experience "the future," adding that it "exceeded expectations."

In terms of near-term growth, Ives is optimistic. "Tesla is in a pole position to be a clear leader in the autonomous market opportunity with Robotaxis set to scale to 30 to 35 cities in the U.S. over the next year," he recently told clients. "We estimate the AI and autonomous opportunity is worth at least $1 trillion alone for Tesla," he said, adding that "the march to a $2 trillion valuation for TSLA over the next 12 to 18 months has now begun."

Ives isn't alone in his bullishness. Major Tesla shareholder Cathie Wood believes the global robotaxi market could eventually be worth $5 trillion to $10 trillion. Tesla CEO Elon Musk himself has declared that there will be "millions" of autonomous Teslas driving on the streets of America by the end of next year. That's an ambitious goal but indicates how enthusiastic Musk is.

Clearly the market believes much of the hype. Tesla is expected to see a sales decline this year, yet shares trade at a hefty premium to other electric car stocks.

The global robotaxi market is clearly exciting, and Tesla is arguably in the driver's seat when it comes to taking a leading role in this valuable opportunity. But is the hype worth the upfront premium? There are a few things to keep in mind before jumping in.

Image source: Getty Images.

Don't blindly trust Tesla's management, other investors, or analysts

Here's the problem with the rosy predictions discussed earlier: All three of these personalities -- Musk, Wood, and Ives -- are known for their overly optimistic takes.

Musk has been promising self-driving cars for nearly a decade, with many failed promises along the way. Even the "autonomous" vehicles in the Austin pilot project have had many documented issues, often requiring human overseers to take the wheel remotely.

Wood, meanwhile, has a track record of overestimating Tesla's future stock price. In 2019, for example, she predicted Tesla's stock price would reach $700 to $4,000 per share by 2024. Tesla's peak price that year was around $430.

Ives has proven no more reliable. Earlier this year, he slashed his price target on Tesla stock from $550 per share to just $315, only to raise his price target aggressively within a few months as shares started to rebound.

When you look at alternative estimates for the global robotaxi market -- estimates not generated by Tesla's management team, its investor base, or the most bullish analysts -- you get a much more sober view of how big this market is likely to be over the next five to 10 years. Fortune Business Insights predicts this market to be worth roughly $120 billion by 2031. Precedence Research calls for a $190 billion market by 2034. Goldman Sachs, meanwhile, predicts 35,000 robotaxis in the U.S. by 2030, generating around $7 billion in revenue annually.

All of these figures are far below what Ives, Musk, and Wood predict. Could that trio be correct about Tesla's robotaxi potential? Absolutely. But given what other watchers are saying, investors should take a more cautious approach when modeling how fast and how big this business segment will become.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Tesla. The Motley Fool has a disclosure policy.