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Tesla remains a narrative king within the market: Barclays

investing.com 18/12/2024 - 13:57 PM

Tesla's Extraordinary Rally

Investing.com — The extraordinary rally in Tesla (NASDAQ:TSLA) shares since the US election underscores its status as the "narrative king" of the market, according to Barclays (LON:BARC) analysts.

The electric vehicle (EV) maker saw its stock surge approximately 90% since Donald Trump won the US presidential election, adding a staggering $730 billion to its market capitalization, a feat matched only by a few mega-cap tech giants like NVIDIA (NASDAQ:NVDA) and Apple (NASDAQ:AAPL).

Barclays notes this performance is especially remarkable given the stock’s apparent disconnect from underlying fundamentals, with Tesla's price-to-earnings (P/E) multiple soaring from 80x pre-election to an elevated 145x based on 2025 consensus EPS estimates.

The decoupling from fundamentals in many ways mirrors the rally we saw from Tesla in 2020-21, analysts led by Dan Levy said in a note.

They attribute this rally to the "magnification of Tesla's narrative command," which revolves around themes like autonomous vehicles (AV) and artificial intelligence (AI).

Outlining key considerations of the rally, analysts said the "Tesla-financial complex" plays a crucial role, with options activity amplifying stock moves.

Notional trading volumes for Tesla options have reached levels unseen since late 2021, averaging $100 billion daily post-election, with spikes as high as $245 billion. Elevated call-to-put ratios, significantly above the 2024 average, reflect strong investor appetite to leverage upside potential.

Tesla’s stock behavior is also likened to that of Bitcoin, embodying "animal spirit" factors such as belief in disruptive potential, scarcity as the only publicly traded Elon Musk-led company, and speculative enthusiasm.

Moreover, retail interest in the stock remains robust, with 30% of Tesla’s outstanding shares held by retail investors, according to Barclays.

“Tesla remains the “OG meme stock,” analysts emphasized.

The stock has further benefited from a "catch-up" trade. Earlier in 2024, Tesla lagged behind the broader market and other AI-related stocks like NVIDIA and Palantir (NASDAQ:PLTR). However, its size, liquidity, and volatility have made it an appealing candidate for investors seeking exposure to the megacap tech rally. Even after its recent surge, Tesla still trails significantly behind year-to-date gains for some peers.

Barclays also emphasizes the growth of the "Elon premium" in Tesla’s valuation. Musk’s prominent role in supporting the 2024 Trump campaign has elevated his standing as a global figure, translating to heightened interest in Tesla.

“Tesla is the only Elon Musk company that is publicly traded and it has often served as a proxy for an investment in Musk himself…this value has understandably increased, but this further exacerbates the already-high key man risk in Tesla stock, in our view,” analysts said.




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