Tesla: The Most Expensive Stock Among the Magnificent Seven

Tesla Inc. (NASDAQ: TSLA) has reached an incredible milestone, solidifying its position as the most expensive stock among the Magnificent Seven — a group of trillion-dollar stocks that also includes Apple, Alphabet, Meta Platforms, Microsoft, Nvidia, and Broadcom. After a staggering rise of 73% since the November 5 election, Tesla shares are now trading at an eye-watering price-to-earnings (P/E) ratio of 130 times its estimated earnings for 2025, which is significantly higher than its peers who average a P/E of just 29 times their estimated earnings.

Recent Stock Performance

Coming into this week, Tesla’s stock is up roughly 76% year to date, reflecting a dramatic turnaround from what had been a lackluster year for its investors. The post-election rally has propelled the stock price beyond even the highest price targets set by analysts. For instance, Friday saw Tesla trading above analyst Jairam Nathan’s target of $420 set by Daiwa. Recently, Wedbush analyst Dan Ives raised his price target substantially to $515, emphasizing that “the autonomous future is coming sooner.”

Phenomenal Market Valuation

Tesla’s current valuation leaves many analysts surprised. The shares have surged so quickly that they are currently trading beyond the highest Street target price, a historical rarity even for a company as dynamic as Tesla. Notably, the last time shares traded above $400 was in late 2021, when investor optimism led to price points above $410.

Market Expectations vs. Reality

The stark contrast between Tesla’s share price and Wall Street’s earnings estimates reveals that investors have far greater expectations for the company’s future earnings than what analysts project. Two primary factors are driving this optimism. The first is the anticipated release of a new vehicle model in 2025, which CEO Elon Musk projects will increase Tesla’s production to approximately 2.3 million units — an increase of about 25% compared to current projections.

However, the bulk of investor excitement lies not in increased car sales but in Tesla’s ambitious plans for a self-driving robotaxi service slated for launch in late 2025. This innovative service has the potential to redefine the transportation paradigm, but it currently appears to be underrepresented in Wall Street’s earnings targets, as analysts await more data.

The Revenue Puzzle: Robotaxis

While the traditional car sales will contribute around $10 billion to the company’s earnings in the coming years, the question arises: How much can Tesla earn from its robotaxi service? Historical precedents in the robotaxi space are scarce, with Alphabet’s Waymo being a notable success, conducting over 150,000 driverless cab rides weekly. The challenge lies in forecasting the potential earnings from this new service.

Using the current average P/E ratio for trillion-dollar firms, Tesla would need to generate an estimated $50 billion annually to support its stock valuation. Given that the car business is projected to earn about $10 billion in the near future, this implies that Tesla’s robotaxis would need to account for roughly $40 billion of annual earnings to align its valuation with that of its peers in the Magnificent Seven.

The Potential Earnings Forecast

To put things into perspective, if Tesla were to trade at an average P/E multiple similar to that of Apple and Saudi Aramco, the company would need to reach annual earnings of approximately $225 billion — an ambitious goal. As Musk expressed in 2022, he sees Tesla being valued greater than both companies combined, which currently totals around $5.6 trillion.

Conclusion

Tesla’s stock performance ignites profound discussions about investor expectations, the future of autonomous driving, and sustainable transportation. While significant risks remain, particularly with unrealistic earnings forecasts, the narrative around Tesla continues to captivate the market. For investors, the key takeaway is that the expectations surrounding robotaxis are not merely optimistic; they are fundamental to understanding TSLA’s staggering valuation in the broader context of the Magnificent Seven.

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Tesla Surpasses Peers as Most Expensive Stock in the Magnificent Seven