Up more than 40% in a year, Tesla (NASDAQ:TSLA) stock continues to baffle some investors.
After all, many growth-oriented AI stocks have been under pressure, and Tesla fits into that category despite most of its money coming from selling cars.
Indeed, this gets to the heart of the debate on Tesla. The bears rate it as a wildly expensive car company, while the bulls see an AI/robotics powerhouse in the making.
As for the company itself, it says it’s a firm in “transition from a hardware-centric business to a physical AI company“. In other words, it’s going from an EV maker to one that churns out robotaxis and Optimus humanoid robots. Both are examples of physical AI.
Normally, a company morphing into something else would frighten investors. Yet not in Tesla’s case, as evidenced by its $1.24trn market cap and stock trading at 369 times earnings.
Robots are coming
In 2025, revenue dropped 3% to $94.83bn, marking the first annual top-line decline in Tesla’s history. Profit and margins both dipped, alongside a 10% slide in automotive revenues.
Yet investors still buy into CEO Elon Musk’s vision. Part of this will see Tesla winding down Model S and X production at its Fremont facility to make way for Optimus production.
On the earnings call, Musk said: “We are really moving into a future that is based on autonomy…We are going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory with a long-term goal of having a million units a year of Optimus robots.”
Meanwhile, the first rides with no safety monitor in robotaxis have taken place in Austin. And Tesla has recently started production of the CyberCab, which has no steering wheel or pedals.
Existing Tesla owners will have the option to add their vehicles to the future autonomous fleet. He compared this to how Airbnb works, where “you can add or subtract your house to the Airbnb inventory“.
The company plans to unveil the Optimus 3, which Musk says will be a “very capable” robot, later this year. All this will result in high capital expenditures in 2026 (in excess of $20bn).
Techno-utopianism
To be clear, I find the plans exciting. Musk expects to eventually produce more CyberCabs than all existing Tesla models sold together today. And the millions of Optimus robots will apparently have the ability to learn new tasks by observing human behaviour.
As such, Musk predicts Optimus will eventually “move the needle on US GDP significantly“. And combined with cheap solar energy (another Tesla speciality), this could create a future where people can have “whatever they want“, because productive capacity increases infinitely, massively lowering costs.
Sounds great. But my fear as an investor is that the road between now and this techno-utopian future is paved with risk when the stock is trading at 200 times forward earnings.
For example, regulatory approvals for robotaxis are city-by-city, state-by-state. That process doesn’t sound like big revenue growth is coming in the short or even medium term.
However, while Musk’s long-term vision is still intact, investors don’t seem to care much about profits or valuation. It worries me though. So while I could be interested in buying Tesla stock at some point, I won’t invest at the current valuation.
