Why Tesla (TSLA) is an undervalued AI stock, according to analyst

For years, Tesla (NASDAQ: TSLA) has maintained a strong position in the electric vehicle (EV) industry, but an analyst is suggesting that the company might be overlooked in the booming artificial intelligence (AI) sector.

This assessment is inspired by Tesla’s inroads in autonomous driving, robotics, and AI-driven technology, as Mark Newton, a technical analyst at Fundstrat Global Advisors, noted in an X post on September 20,

Newton expressed amazement at how Tesla’s technologies, such as the upcoming Robotaxi, the humanoid robot, and Full Self-Driving (FSD), are being overshadowed by CEO Elon Musk’s social media presence. In his view, it’s time investors pay attention to Tesla’s growth potential in the AI space. 

Indeed, Tesla has made progress in AI training, leveraging Nvidia (NASDAQ: NVDA) chips—an advantage likely to differentiate the Texas-based firm from other automakers in the long term.

However, the expert believes this technological advancement appears to be taking a backseat to Musk’s public persona, with investors seemingly distracted by his controversial X posts.

The expert’s take boils down to the possibility of investors recognizing the strength of Tesla’s AI-related initiatives, and the stock could experience a further boost. In this regard, he warned that those who remain pessimistic may soon have to reconsider their stance as Tesla’s AI innovations begin to play a more central role in its growth.

“At what point will those investors with their heels dug in on their own negativity be forced to admit they’re wrong as this undervalued AI play starts to increasingly gain more technical traction,” Newton said. 

Other analysts take on Tesla stock 

Newton’s observation aligns with Deutsche Bank’s outlook. Analyst Ed Yu noted that Tesla should be viewed as more than just an EV company; given its ability to influence various sectors, it should also be considered a technology entity. Based on this potential, the bank rates Tesla a “buy” with a target price of $295.

Moving away from Tesla’s purpose in the EV and tech sectors, the firm’s long-term outlook remains bullish, considering its initiatives likely to improve revenue. For instance, the Musk-led EV maker is planning to unveil a more affordable model in the first half of 2025, aiming to solidify its position in the EV market.

Additionally, after Tesla delivered fewer vehicles to customers for the second quarter in a row, estimates indicate this quarter’s figures could align with market expectations. Tesla reported producing 410,831 cars over the three-month period that ended in June. For Q3 2024, Tesla is expected to deliver 460,000 units, aligning closely with the market consensus of 461,000, Finbold reported on September 18.

Wolfe Research analyst Emmanuel Rosner, who released the estimates, pointed out that Tesla’s share price will likely rally in the short term, partly triggered by positive sentiment from the upcoming Robotaxi event slated for October 10.

TSLA share price Wall Street consensus 

Despite the bullish outlook, a consensus from 36 Wall Street analysts is forecasting a possible downside for Tesla shares over the next 12 months. The analysts at TipRanks predict the stock could trade at $208 in a year—a downside of almost 10% from the valuation at the time of reporting. If bullish sentiments prevail, experts foresee a potential high target of $310, while a low prediction has been set at $24.

Technically speaking, Tesla’s stock has started to gain upward momentum after consolidation. Newton’s analysis showed a breakout formation as TSLA  moved beyond its recent downward trendline, signaling the potential for a stronger rally. It’s worth noting that Tesla had a rough start to the year following a decline in overall EV sector demand.

The analysis illustrated Tesla’s performance between June 2020 and September 2024, showing significant price increases of up to 38% and 27% at various points before undergoing consolidation. In this regard, Newton suggests that the consolidation could be coming to an end, indicating that Tesla is ready for another upward move.

At the last market close, Tesla was trading at $243, up 7% for the week. This performance saw Tesla emerge among the biggest gainers in the S&P 500 index.

In summary, as the market begins to recognize the potential of Tesla’s AI initiatives fully, this could lead to a reassessment of its valuation, reflecting the company’s true position as a leader in both electric vehicles and artificial intelligence.

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