Tesla’s stock ride this year is a study in hype, pivot and patient hope. After a steep drop that erased post-election gains, the company has nudged higher thanks to a renewed emphasis on artificial intelligence and ambitious product bets. That shift has investors split between cautious skepticism and full-throttle belief in a future built around robots, custom chips and autonomy.
Tesla slid sharply earlier in the year, surrendering nearly half its value at one point and surrendering some post-election momentum. The shares have clawed back modest ground and sit up about 3.5% year to date, but they still trail the broader market and remain well below their recent highs. That patchy comeback is tied as much to narrative as to hard numbers.
The narrative is a move toward AI, led publicly by Elon Musk and visible in product pushes like Optimus and robotaxis. Robotaxis haven’t delivered the revolution many expected and face stiff competition from incumbents such as Uber and Waymo. Optimus, however, is being sold to investors as the potential long-term growth engine that could justify the lofty valuations.
Musk has been explicit about Tesla’s internal work on AI hardware. He posted on X saying, “Most people don’t know that Tesla has had an advanced AI chip and board engineering team for many years.” He added that Tesla has “designed and deployed several million AI chips” for data centers and argued they will “…profoundly change the world in positive ways, saving millions of lives due to safer driving and providing advanced medical care to all people via Optimus.”
Investors historically paid a big premium for Tesla, treating it less like a traditional carmaker and more like a high-growth tech platform. That premium reflected expectations that Tesla would keep leading the electric vehicle market and expand into software, services and robotics. For years, robust sales growth and improving margins made that valuation easier to tolerate.
Those growth signals have cooled. Unit deliveries barely budged, going from 1.8 million vehicles in 2023 to 1.79 million in 2024, and revenue growth has been uneven. The most recent quarter showed a roughly 12% year-over-year revenue increase but came alongside a sharp 37% drop in earnings per share, a jarring mismatch for a company trading at elevated multiples.
Despite softening fundamentals, Tesla’s valuation metrics have remained stretched and even expanded in some respects. The stock continues to trade on high expectations, a long-term uptrend that stubbornly resists the reality of slowing top-line momentum and compressed profits. That gap between price and performance is exactly why many analysts warn of heightened downside risk.
The pivot to AI has also reshaped how some big investors view the company, with retail enthusiasm and names like Cathie Wood fueling optimism. Still, turning concepts like Optimus into a household product is likely a decade-long endeavor at best. Full self-driving is already a cautionary tale: promises and timelines have repeatedly been pushed back, including early claims that full autonomy would arrive years ago.
Household robotics are orders of magnitude more complex than vehicle autonomy, with countless edge cases and varied home environments to tackle. It’s reasonable to expect underdelivery relative to the loftiest projections, even if incremental breakthroughs keep headlines coming. Meanwhile, the market is effectively pricing in the distant and optimistic possibility of a $25,000 robot paired with subscription revenue.
Tesla’s custom AI chips today are mainly put to internal use, powering data centers and autonomy stacks, so their commercial revenue impact is limited right now. That doesn’t mean the technology lacks value, but it does mean chip sales are not a near-term fix for valuation concerns. For investors focused on fundamentals, established chip and cloud players often offer clearer profit paths.
Looking ahead, TSLA’s fate is tied to the broader AI story and whether the market keeps paying for future potential. If you’re an unabashed AI bull, the stock’s upside may seem worth the risk, but for many the smarter choice remains buying companies with steadier profits and margins. Absent consistent delivery on promises, a significant correction remains a distinct possibility given the current valuation backdrop.
