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Barclays Analyst downgrades Tesla to take profits after recent rally
Barclays downgrades Tesla to equal weight
Barclays analyst Dan Levy has downgraded Tesla's stock to equal weight from overweight, citing investors' excitement over AI-driven thematic trading and Tesla's recent agreement to open its Supercharger network to other brands. Levy is hiking his price target by $40 to $260, which indicates that shares will need to decline 5.3% from Tuesday's session finish. However, Levy says there's still a long-term opportunity for shareholders in Tesla as it remains most favourably positioned to be a winner among original equipment manufacturers amid the shift to electrification.
Fundamentals may be overlooked as AI gains prominence
According to Levy, Tesla stock's recent rally is best explained by the market's current AI-driven thematic trade and excitement over the company's recent announcement to allow other brands to use its Supercharger network. While he believes that the stock is poised to participate in the rally, Levy recommends taking a prudent stance right now. Although the company does have AI exposure, particularly through its self-driving technology, it is unlikely to be a significant winner like Nvidia. As AI gains prominence and investors continue to show their support for AI-backed stocks, he believes that fundamentals may be overlooked.
Positive reasons driving Tesla's surge
Levy also mentioned that part of the rally is due to a 'dearth of bad news' for Tesla. Any negative stories have failed to gain traction amid all of the positive news. For instance, the German newspaper's May story about Tesla's self-driving work and data security issues was quickly forgotten, and the sentiment remains relatively positive towards the company since then. News such as the recent eligibility changes for Tesla's Standard Range Model 3 and the hiring of Linda Yaccarino, NBCUniversal ad chief, as Twitter's CEO could also be helping.
Tesla's partnership with other car makes may boost its stock
Levy also pointed out that partnerships allowing other carmakers to use Tesla's charging technology have been a talking point, and it could be another reason behind the stock's surge. He believes that Tesla is more than just a carmaker and is likely to receive the 'more than a carmaker' treatment by the market, with support coming from retail and momentum investors. Excitement could surge in late 2024 and 2025 over the lower-cost Model 2, Levy mentioned.
While Levy sees Tesla as a long-term investment, right now, he is advising to take some profits and 'move to the sidelines.'
The recent downgrading of Tesla's stock by Barclays could indicate a shift in the market's perspective on AI-backed stocks. While Tesla has seen a surge in its stock due to its recent announcement about opening its Supercharger network and the lack of negative news, the rally may be driven by investment trends rather than the company's fundamentals. The excitement around AI may lead investors to overlook key metrics and instead focus on thematic trading.
For new businesses looking to enter the AI market, it may be important to understand and navigate these investment trends while also establishing a strong foundation of fundamentals. While partnerships and brand recognition can be helpful in generating momentum, a solid business plan and clear value proposition are essential for long-term success in any market. Additionally, being able to adapt and pivot in response to changing market trends will be key.
Overall, the Tesla downgrade highlights the importance of balancing investment trends with fundamental metrics and not relying solely on hot topics to drive success. New businesses entering the AI market must be prepared to navigate these trends while also establishing a solid foundation and being adaptable in response to market changes.
