Is Tesla Breaking Out?

When CEO Elon Musk reported Tesla’s latest earnings results this week, few were excited by the numbers.

In fact, the share price immediately fell off a cliff in after-hours trading to $356 per share but within minutes a sharp bounce back occurred and, in the virtual blink of an eye, the share price was back over $400 per share.

That led one commentator to observe that Tesla is virtually impenetrable in this market and the answer as to why isn’t based on car production or deliveries, or indeed those on the horizon, but a much more tectonic shift that is set to disrupt the future.

Key Points

• Optimus robots and AI-driven automation keep investors bullish despite so-so earnings.
• Beyond cars, Tesla’s AI-driven tech aims to transform daily life and industry.
• Despite an elevated valuation, bulls are backing Tesla’s future potential, driving price strength.

Musk’s Vision

Investors appear to be holding on and refusing to sell, not because of future automobile deliveries but based on other business unit “call options” under the Tesla corporate hood.

Musk stated that Optimus robots are already being employed to do the most mundane of tasks in Tesla factories that no human wants to do. He’s also stated that there will be no shortage of demand from industry for Optimum robots when they launch commercially, and that opportunity is set to be a massive growth vector to the tune of trillions of dollars if Musk’s forecasts are to be believed.

The upside opportunity associated with Tesla now versus the muted opportunity in some Mag 7 rivals like Microsoft is likely the reason that disappointing earnings from both led to the latter tumbling but the former showing admirable share price strength.

What car enthusiasts alone can’t fathom is that Tesla is primarily a software company that can be applied to hardware devices, such as cars or robots. He envisions a future where those robots can make your dinner, shop for you, teach your kids and so on. If he’s right, the forecast of ten trillion dollars plus of market valuation opportunity is not unrealistic. But that’s the long-term, what about the short-term?

Share Price Breakout

For now, the big question is whether this triangle pattern will lead to a breakout technically. Today, intra-day, the share price peaked above the resistance line and is hovering right around it as we write.

The all-important close will dictate whether a breakout is confirmed but for now, it seems the bulls are holding a firm clasp of Tesla and buying up most dips. That’s not a stock you want to fight in the near-term.

So, while valuation based on present and forecasted cash flows suggests limited upside and reasonable downside risk, the bulls are applying some probability to the future vision Musk has rolled out for Optimus and self-driving cars, and are willing to pay a premium versus what the sum of the cash flows might suggest it’s worth today.

As a trivia aside, analysts have fair value pegged at $324 per share while a discounted cash flow forecast analysis is even more pessimistic at $291 per share, but neither of those numbers are phasing the bulls, for now.