Key Points
With its Optimus robots and Robotaxis, Tesla wants to bring artificial intelligence to the physical world.
The stock’s lofty valuation presents an extremely high hurdle for the company’s fundamentals to overcome.
Had you purchased Tesla (NASDAQ: TSLA) 10 years ago and held one, you'd have reaped a monster 2,380% return (as of July 21). That's a nearly 25-fold gain, something any investor would be ecstatic about.
It now has a market cap of $1.4 trillion, so there is certainly not as much upside potential in its future as there was in its past. But could buying this "Magnificent Seven" stock today eventually give you a 10x return?
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The potential of Robotaxi and Optimus
Tesla is still primarily an electric vehicle company, but its bull case rests more on its ability to bring artificial intelligence capabilities to the physical world at scale.
One area this will show up is autonomous driving technology. Tesla is currently operating its self-driving Robotaxis service with unsupervised rides in four U.S. cities. Clearly, it will have a lot of work to do to get it up and running at scale in markets around the world. But if it can compete successfully against the other players in the self-driving and ride-share spaces, there's a chance it could result in a sizable high-margin revenue stream.
Its Optimus humanoid robot is another initiative that provides the business with optionality. Tesla began preparations for its first large-scale Optimus factory in Q2. The ultimate goal is to sell these machines both to enterprise clients and consumers.
Expectations are sky-high
Tesla is working on ambitious projects. Yet even if it finds success with Robotaxi and Optimus, it's hard to know if shareholders will be happy.
That's because the company's sky-high valuation introduces a notable headwind to further share price appreciation. The stock trades today at a price-to-earnings ratio of 353. Even with flawless execution on Tesla's part, the optimism already baked into the stock might leave it with little to gain from rising earnings and revenues. With that in mind, investors should not expect another 10x gain from the stock. It's also worth repeating that retail investors should not put all of their eggs in one basket, nor all of their portfolio in one stock. So if you buy Tesla shares today, even in the unlikely event that the company does increase in value tenfold from here, that would not 10x your net worth.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.