Is Tesla Inc (NASDAQ:TSLA) an Overbought AI Stock in 2024?

Attiya Zainib

9 July 2024 at 9:45 am·4-min read

We recently published a list of the Top 10 Overbought AI Stocks in 2024. Since Tesla Inc (NASDAQ:TSLA) ranks 10th on the list, it deserves a deeper look.

The second half of 2024 is here and rate cuts from the Federal Reserve remain elusive, with warnings about valuations and AI-led market hype growing louder. A number of notable Wall Street analysts have recently warned that the markets remains more concentrated than ever where just a few stocks account for most of the gains, thanks to their dominance in the AI industry. Many also believe the market is up for a correction as it has entered the overbought territory. Financial services company BTIG recently said in a report that the world’s fifth-largest exchange-traded fund by assets under management (AUM), QQQ Trust Series 1, now trades “well into” overbought territory based on its Relative Strength Index technical indicator. QQQ tracks the Nasdaq-100 Index and it’s not surprising to see the ETF showing signs of being overbought as more and more investors pile into mega-cap tech stocks in order to ride the AI bandwagon.

For this article we scanned the holdings of the Invesco QQQ Trust Series 1 ETF and picked top technology holdings of the fund with higher Relative Strength Index (RSI) values. Usually, an RSI value of 60 and above shows a stock is overbought. We have also mentioned the number of hedge fund investors with these stocks. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Hadrian / Shutterstock.com

Tesla Inc (NASDAQ:TSLA)

Number of Hedge Fund Investors: 74

Tesla Inc (NASDAQ:TSLA) has a forward P/E of 102 while its 14-day RSI value is 85, worse than 99% of 1342 companies in the Vehicles & Parts industry, according to data from GuruFocus. Tesla is a key part of the QQQ ETF, which according to BTIG has entered the overbought territory based on its RSI value.

However, some Wall Street analysts believe Tesla Inc (NASDAQ:TSLA) is undervalued.

Cathie Wood recently set a $2600 price target on Tesla Inc (NASDAQ:TSLA) for 2029, which present a whopping 1300% upside potential from the current levels. Wood thinks the robotaxi project has the potential to deliver $8 to $10 trillion in revenue by 2030.

However, many believe Tesla Inc (NASDAQ:TSLA) won’t be able to live up to the hype around its robotaxi plans. Each robotaxi is expected to have a price target of around $150K to $200K, with some estimates suggesting Tesla Inc (NASDAQ:TSLA) would need about $35 billion to develop a global feet of such cars. Amid inflation and lack of preference for electric cars, American families will probably stay away from spending a fortune on robotaxis, which could cause a blow to Tesla Inc’s (NASDAQ:TSLA) plans in the future.

Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:

“The vast majority of the Fund’s underperformance this quarter stemmed from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla’s shares fell 29.3% during the period and detracted 13.41% from the Fund’s first quarter results. Although Tesla has contributed importantly to the Fund’s performance since 2014, on occasion it has detracted from quarterly performance. In previous instances when Tesla shares have underperformed during a discrete period, they have shortly afterwards reflected the strong growth of the underlying business and the stock has appreciated considerably. We believe that will be the case again, although cannot guarantee it.
A significant decline also occurred at the end of 2022. In that instance, investors had become concerned about a host of external factors. Investors believed the company founder, visionary, and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed a weak Chinese economy emerging from COVID and U.S. government policies would curtail the purchases of Tesla vehicles. These fears proved to be overblown. As the company achieved milestones in the succeeding year, the stock subsequently doubled over the next 12 months…” (Click here to read the full text)

Overall, Tesla Inc (NASDAQ:TSLA) ranks 10th on Insider Monkey’s list titled Top 10 Overbought AI Stocks in 2024. While we acknowledge the potential of Tesla Inc (NASDAQ:TSLA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Tesla Inc (NASDAQ:TSLA) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Disclosure: None. This article is originally published at Insider Monkey.

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Is Tesla Inc (NASDAQ:TSLA) an Overbought AI Stock in 2024?

Tesla Inc (NASDAQ:TSLA)

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