Following Donald Trump's presidential election victory, enthusiasm among Tesla (TSLA, Financial) investors has surged, driving the stock price upward. Investors are betting that Trump's potential second term could bring unexpected gains to the Elon Musk-led electric vehicle manufacturer. Tesla's stock price has climbed over 39% since the election, adding more than $300 billion to its market value. On the recent trading day, the stock closed up about 9% at $350.
Market experts classify Tesla as a "momentum" stock, meaning its gains and losses can quickly escalate when investor sentiment shifts. According to Steve Sosnick, Chief Strategist at Interactive Brokers, the market perceives Tesla as a beneficiary of Trump's victory due to Musk's strategic bets. The recent surge is also driven by a market tendency to buy the dip, pursue rebounds, and employ leverage or options.
Options traders are speculating on further gains, with the premium for call options over put options reaching its highest level since early 2021. Numerous contracts are betting that Tesla's stock will rise to $450 or beyond, potentially surpassing its pandemic-era intraday high of $414.50.
Wedbush analyst Daniel Ives views Trump's potential presidency as a game-changer for Tesla's autonomous driving and AI initiatives. Ives has raised his price target for Tesla from $300 to $400, estimating that AI and autonomous driving alone present a $1 trillion opportunity for the company, while maintaining a buy rating.
According to Sosnick from Interactive Brokers, a favorable regulatory environment tailored for Musk's ventures could theoretically facilitate the expansion of Tesla's autonomous driving technology.
Despite the enthusiasm, Wall Street's target prices suggest a potential 32% decline over the next 12 months. Some analysts remain skeptical about the rally's magnitude, suggesting it may overestimate Tesla's benefits from a Republican victory.
Currently, Tesla's 14-day Relative Strength Index, an indicator of bullish and bearish price momentum, stands at 81. This level above 70 typically signals a potential downturn soon.
