As tech stocks find support after the sector’s recent slump, the latest Tesla (NASDAQ:TSLA) tumble has ended. Tesla stock is now holding steady at around $230 per share. So, is it time to “buy the dip?” Not so fast. Who’s to say that the dust has finally started to settle?
Yes, “Robotaxi Day” and other major events are months away. However, the EV maker’s shares could in theory soon embark on a recovery. It all has to do with a resurgence in “AI mania.”
In fact, something AI-related on the horizon that could spark the next wave of Tesla hope and hype. Even so, there are much better AI stocks out there to buy. Buying TSLA for AI exposure may not be so worthwhile.
Even if you’re bullish about the impact of an EV recovery on Tesla’s fiscal performance next year and beyond, keep in mind too that there are also much stronger vehicle electrification plays out there as well.
Why a Tesla Stock Rebound Hinges on ‘AI Mania Redux’
If something is going to cause Tesla to suddenly surge higher, don’t count on it being anything automotive-related. The market was more-than-justified in bailing on Tesla stock following the company’s latest earnings release on July 23.
Although the market, already knowledgeable about vehicle delivery declines for the preceding quarter, was anticipating a dip in profitability, Tesla’s Q2 2024 earnings came in worse-than-expected.
For now, Tesla appears set to remain in a global slump. Weak demand and increased competition is poised to keep putting pressure on sales and margins.
With regards to Tesla’s would-be Robotaxi Day catalyst, not only is a confirmed delay in this event further sign that EV-related factors will help spark a new rally for shares. It’s possible that pessimism about the Robotaxi grows now and its official unveiling.
At least, that’s the takeaway from a recent research note from Truist’s William Stein. In the research note, Stein revealed several shortcomings with Tesla’s self-driving technology.
This could mean that the Robotaxi may not necessarily be ready for prime time by October. Considering all this, it’s clear that the only thing that will probably move the needle for shares in the near-term is further news on Tesla’s AI endeavors.
If You’re Buying TSLA for AI, the Key Question is ‘Why?’
Tesla stock has experienced a moderate price decline over the past month. Even so, it’s not as if Wall Street has forgotten about its AI potential. Analyst Adam Jonas recently named TSLA as being Morgan Stanley’s top auto stock pick.
However, much of Jonas’ bullish assessment of the current situation with Tesla focused on the company’s shifting of resources away from its core automotive segment.
It’s also why this stock, despite declining growth and profitability, continues to command such a high valuation by the market.
Yet while Tesla may once again rally due to a market mad dash back into AI stocks, why buy Tesla when you could, say, buy shares in a company that’s already profiting from the trend?
For instance, names like Nvidia (NASDAQ:NVDA) or Microsoft (NASDAQ:MSFT). In AI chips and cloud computing, respectively, both companies have already figured out how to make money in AI.
Tesla, on the other hand, is simply making more future promises. Past promises, such as a fast-tracked launching of the Robotaxi, remain unfulfilled. That said, as I mentioned above, there is one type of possible AI news that could quickly get TSLA back to a full charge.
Bottom Line: Stick to Better Plays in AI and EVs Instead
Yes, given TSLA’s tendency to trade on factors besides fundamentals, it’s possible that hype surrounding a major AI-related development could drive the next big rally for shares. Namely, news related to rumored plans for Tesla to invest billions into xAI, Tesla CEO Elon Musk’s privately-held AI venture.
Yet while you’re free to buy TSLA for this reason, keep in mind that the risk/reward proposition may not be favorable. With shares trading for 92.4 times forward earnings, this potential catalyst is largely baked-in.
Shares could even decline on a Tesla-xAI announcement. Following an announcement, these speculators could decide to “sell on the news” all at once. If you’re considering TSLA for other reasons, there are far better AI and EV opportunities out there.
If you’re bullish on AI, MSFT and NVDA are both far more favorably priced, relative to growth forecasts.
For those bullish on an EV market recovery, there are quite a few names you may want to consider buying instead. Any way you slice it, when it comes to Tesla stock today, sticking to the sidelines, not buying the dip, is still your best move.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.