Musk is touting a future of driverless cars, robot assistants and life on Mars to investors. But the problem for investors is that there's currently only one way to bet on his vision: Tesla stock.
Shares of the electric car maker rose nearly 3% on Thursday. Previously, the stock hit its first record high this year on Tuesday, with a cumulative gain of more than 20% in four weeks. After the market fell into high panic due to the Trump administration's tariffs and the stock price hit a low on April 8, the stock has soared nearly 120% and ranked among the 20 best-performing stocks in the S&P 500 Index.
The gains demonstrate Wall Street's confidence in Musk's artificial intelligence ambitions, especially as Tesla's core auto business struggles. But it also makes Tesla's stock price extremely expensive. Based on earnings over the next 12 months, its price-to-earnings ratio is 214 times, the second-highest in the S&P 500, second only to Warner Bros. Discovery Inc. and much higher than third-ranked Palantir Technologies Inc. ——As of Wednesday’s close, Palantir’s forward price-to-earnings ratio was 178 times.
"This valuation is completely unreasonable," said Vikram Rai, portfolio manager and macro trader at First New York. The company sold its Tesla holdings earlier this year after a public breakup between Musk and President Donald Trump on social media.
With Musk's SpaceX potentially going public next year, stock traders looking for "Elon exposure" will soon have another way to place their bets. The space exploration company is planning an internal share sale that would value the company at $800 billion, making it the world's most valuable unlisted company. Its initial public offering (IPO) will be the largest in history.
"The listing of SpaceX may bring some selling pressure on Tesla's stock price," Horizon Investments analyst Dmitry Shlyapnikov said. "Some investors hold Tesla to bet on Elon's ideas rather than to invest in the car company itself."
Of course, some people believe that the listing of SpaceX will bring Musk into the spotlight and add further impetus to Tesla.
"Historically, when one of Musk's companies achieves a major milestone, it often boosts confidence in other companies," said Adam Sarhan, CEO of 50 Park Investments. "A high-profile SpaceX IPO may attract a new group of investors who are impressed by its innovation story - and this enthusiasm often spreads to Tesla."
Bloomberg Intelligence analyst Steve Man said that so far, Tesla's stock price has benefited from the enthusiasm surrounding SpaceX. He said the missions of the two companies are interconnected, describing a future in which Tesla's Optimus robot assists Musk's Mars colonization ambitions, while SpaceX's Starlink system enhances the connectivity of vehicles on Earth.
These companies all have high valuations. But Tesla skeptics question whether its fundamentals are strong enough to support such levels. Company sales are slowing, profits are declining, regulations are tightening and consumers are spending less on cars.
"If you have been long Tesla, you have indeed made money. This is an indisputable fact," said Thomas Thornton, founder of Hedge Fund Telemetry, who holds a small short position on Tesla. "But in my opinion this is very weird because its fundamentals are so bad."