Since bottoming out on 8 April, the S&P 500 has surged 17.3%. Yesterday (12 May), the benchmark US index jumped 3.26%!
The reason, of course, is due to ad hoc trade updates from President Trump. These announcements have been swinging global markets up and down all year long.
US stocks were up big yesterday because the US and China agreed to reduce many reciprocal tariffs for 90 days as trade negotiations continue.
What seemed key were these words from US treasury secretary Scott Bessent: “Neither side wants a decoupling.”
A complete decoupling of trade and investment between the world’s two superpowers would have massive implications for the global economy and many companies. And therefore the stock market.
So it looks like this threat has been averted, at least for now.
Tesla tops $1trn again
Tesla (NASDAQ: TSLA) was one of the big winners yesterday. Its shares rocketed 6.75%, briefly putting the electric vehicle (EV) pioneer’s market cap back above $1trn.
This looked unlikely a few weeks weeks ago when Tesla reported plunging sales. CEO Elon Musk has also been under fire due to his polarising political views, especially in mainland Europe.
Perhaps investors shouldn’t be surprised by this share price turnaround though. The vast bulk of Tesla’s colossal market value is related to its future growth opportunities in robotaxis — and they’re set to debut next month in Austin, Texas.
Specifically, a Model Y with unsupervised autonomy will kick things off. These trips will probably be the most scrutinised taxi rides ever!
Don’t forget the valuation
According to Cathie Wood of Ark Invest, who is a Tesla uber-bull, robotaxis will send the Tesla share to $2,600 by 2029. That would be an eightfold increase and put the market cap close to $10trn!
I agree that if these early robotaxi rides are successful this summer, the share price may well take off like a rocket. But it’s important that investors interested in Tesla consider the valuation. Right now, the stock’s price-to-earnings (P/E) ratio is 175.
There’s a lot of risk at that price, especially if the robotaxi launch is delayed (again) or the AI-based technology fails in bad weather.
Cash-flow generating machines
Previously, investors buying Tesla stock got the exciting futuristic vision and a growing EV business in the present. But that’s not the case any longer. EV sales are under huge pressure, with competition coming from all angles (legacy automakers and new Chinese players).
However, Tesla bulls aren’t really bothered about this. Ark Invest thinks the vast bulk of earnings growth will come from robotaxis over the next few years, as Tesla transitions from one-off EV sales to a recurring revenue software business model.
In our view, robotaxis will transform Tesla’s business model — from one-off vehicle sales to a sustained recurring revenue stream — turning every car into an AI-powered cash-flow generating machine.
Ark Invest.
Should I buy the stock?
If Tesla’s robotaxis can successfully perceive and understand the environment in real-time, this could allow the company to scale them much faster than rivals. And it would be able to make them far more cheaply than Alphabet-owned Waymo. which depends on third-party manufacturers.
However, as exciting as this sounds, I can’t justify investing at the current price. I think there are far safer growth stocks for my portfolio today.
