UBS analysts, including Joseph Spak, wrote in a note, “If market enthusiasm for AI diminishes, this may impact Tesla’s multiple,” and downgraded their rating to sell from neutral.
They justified the downgrade due to “the lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all),” noting that the stock trades at over 80 times one-year forward estimated earnings.
UBS’s move reflects growing concerns over the valuations of companies linked to AI technology, shown by a recent selloff of Big Tech shares. Tesla also faces a subdued outlook for electric cars, affecting its sales and earnings.
The premium investors assign to Tesla for its various initiatives has increased recently due to AI enthusiasm. UBS analysts noted, “One would need to see an even larger opportunity to justify a buy rating.”
They raised their 12-month target on the stock to US$197 from $147, implying an 18 percent decline from Thursday’s close, using a higher price-to-earnings multiple than before to reach the new target.