After a pretty awful 2022, Tesla (NASDAQ: TSLA) stock has been roaring back to form in 2023. Indeed, it’s now up more than 130% from the 52-week low of just over $100 a share seen back in January.
Why has it been rocketing?
There are a few probable reasons for the massive rebound, rather than a single catalyst.
First, we’ve seen a big recovery in US tech titans generally. Last week, Apple shares hit a record high. Facebook owner Meta has now more than doubled in value this year.
This in itself isn’t all that surprising. Such is the market’s tendency to overly punish stock prices when ‘the end is nigh’ and big them up to silly levels when absolutely nothing can possibly go wrong. Better economic data in the US has clearly brought out the bulls.
Second, the rise and rise of chatter about artificial intelligence — a pie in which CEO Elon Musk has several fingers — has probably helped. You probably don’t need me to tell you just how well shares in chip maker Nvidia have done recently.
Dominant player
Of course, there’s been plenty going on inside the Tesla business as well.
The recent deal to share its supercharging network with General Motors is another seal of approval for its electric vehicle (EV) ecosystem and follows a similar agreement with Ford earlier in the year.
I’m also getting a sense that the controversy surrounding Musk’s ownership of Twitter has died down, at least temporarily.
Regardless of how many potential reasons I list, a ginormous return in only a few months shows how lucrative investing in single-company stocks can sometimes be.
For perspective, the Nasdaq-100 index is up ‘just’ 36% in 2023, as I type.
The FTSE 100? Flat as a pancake.
Buyer beware
Naturally, there’s the concern that the market has got ahead of itself and interest rates don’t go where analysts think they will.
If they don’t, Tesla may be pushed to keep lowering prices as demand slows. Ultimately, this impacts profit and makes the current valuation increasingly untenable.
Even if rates pause/reverse, the problem with any big gainer is that it brings out some profit-takers.
This is one of the few drawbacks of being a Fool. Since market timing is so tricky, we know that investing for the long term tends to produce better results than jumping in and out.
The price we must pay for this is some inevitable volatility along the way.
My verdict
No one can say for sure where Tesla stock is heading over the short term. Momentum investing works brilliantly. Until it doesn’t.
The worst time to buy tends to be when everyone else is.
This is why I stick to building a portfolio that reflects my risk tolerance. Diversification may limit returns, but it allows me to sleep at night.
For now, I remain content to get my exposure to the company via my significant holding in Scottish Mortgage Investment Trust. In sharp contrast to Tesla, it’s still to begin its recovery from the tech sell-off of 2022.
That may be seen as deeply disappointing and a reason to sell up, or a chance to continue accumulating while the chips are down.
I’ve opted for the latter.
