- Tesla shares fell by 2% amid AI hype concerns.
- UBS downgraded Tesla’s rating from neutral to sell.
- Market volatility raises questions about the sustainability of the AI boom.
Tesla’s shares took a significant hit on Friday morning, dropping by 2% to $236.26 during premarket trading.
This drop followed UBS’s decision to downgrade Tesla’s rating from neutral to sell, citing concerns that AI hype had inflated the electric carmaker’s stock value.
Why the Downgrade?
UBS analysts expressed worries that Tesla’s stock had surged too quickly due to a wave of interest in artificial intelligence rather than genuine enthusiasm for its core auto business.
They highlighted that Tesla’s stock price had become entangled in the AI trend, making it vulnerable if the market’s enthusiasm for AI wanes.
While Tesla, led by CEO Elon Musk, has ambitious plans for AI, including autonomous cars, robotaxis, and humanoid robots, the analysts noted that these growth opportunities might only materialize over a longer time frame, if at all.
They acknowledged Tesla’s progress toward fully self-driving cars but pointed out that other AI initiatives were still in the research and development phase.
Recent Stock Performance
Tesla’s Friday slump followed a dramatic 8% drop on Thursday, marking one of its worst single-day performances in months. This fall halted an 11-day rally that had added nearly $260 billion to Tesla’s market capitalization.
The reversal was triggered by a Bloomberg report indicating that Tesla would delay the unveiling of its much-anticipated robotaxi program by about two months to allow more time for prototype development.
This program, which Musk has promoted as a crucial part of Tesla’s future, will now be revealed in October instead of early August.
Broader Market Implications
The AI boom has significantly boosted the stock values of many companies in recent months. However, UBS analysts are among a growing number of voices warning that the sector’s rapid growth might be unsustainable. There are concerns that the AI bubble could soon deflate or even burst.
Big Tech stocks, including those of Apple, Microsoft, Alphabet, Amazon, and Meta, have heavily invested in AI, making it central to their future strategies.
Many of these companies have partnered with, acquired, or invested in smaller AI-focused firms and startups like OpenAI, Anthropic, and Inflection. However, these moves have not insulated them from market volatility.
On Thursday, the Magnificent Seven—Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla—collectively lost nearly $600 billion in market capitalization, marking their second-biggest one-day loss on record.
Impact on Elon Musk
Elon Musk, the richest person in the world with an estimated net worth of $245.7 billion, saw his fortune decrease by approximately $11 billion (5%) on Thursday due to the decline in Tesla’s stock price.
Musk’s wealth is closely tied to the companies he co-founded and leads, including Tesla, SpaceX, The Boring Company, Neuralink, and the new AI startup xAI.
Tesla investors have even sued him over the latter. Musk also owns the social media platform X, which he controversially acquired in 2022.
What to Watch For?
Investors and analysts will be closely watching how the AI boom impacts stock values in the coming months. As companies continue to pour resources into AI development, the sustainability of this growth remains a critical question.
With many experts warning of a potential AI bubble, the market’s response to these developments will be crucial in determining the future trajectory of tech stocks, including Tesla’s.
