Move over, Bitcoin. There’s a new bubble in town.
Tesla (NASDAQ: TSLA) stock is erupting once again this morning, rising 15% just one day after it soared almost 20% in the session prior. TSLA bulls, who were already treated to a 53% yearly gain as of last Friday, are now overjoyed.
Courageous speculators who bought in yesterday made a buck, too. All in all, it’s been a historic (if not befuddling) rally, rivaling even Bitcoin’s run in late 2017 when crypto’s most popular coin almost hit $20,000.
TSLA shares presently sit just above $900, a price level that seemed like a pipedream in December. Major shareholder Ron Baron – who analysts are partially blaming for today’s surge – forecasted that the EV-maker would top $1 trillion in revenue in the next 10 years.
Is that a realistic expectation? Wall Street doesn’t seem to think so, but that hasn’t stopped investors (both retail and institutional) from snapping-up the stock anyway.
“I just can’t believe this freaking stock. It’s insane,” said Roth Capital analyst Craig Irwin on CNBC’s “Squawk Box.”
“This is a big separation from those of us who like to pull out the calculators and look at reality.”
Back on December 19, 2019, when TSLA was trading just north of $400, Irwin’s “calculator” predicted “decelerated growth” as a result of increased competition in the marketplace.
If Tesla’s stock was to keep rising, it would be doing so on “hopes and dreams” he said, not hard numbers. Irwin saw share prices sinking, not soaring, in the new year.
And though his calculation proved to be false, Irwin’s reasoning for the 2020 rally was spot on. The current price explosion has nothing to do with current financials, but rather the belief that one day, Tesla might reach $1 trillion in annual revenue.
Bulls are in the process of pricing-in nearly a decade’s worth of growth in just two days, regardless of whether Musk & Co. can achieve that lofty goal.
“I think this is largely the fear of missing out,” Irwin commented.
“The number of large hedge funds calling in, the number of institutional investors calling in, saying ‘Where does it stop? What’s the catalyst?’ The momentum is huge.”
It’s the same kind of psychology that fueled Bitcoin’s run to $20,000, when the digital currency gained over 100% at its height in December 2017.
As of now, TSLA has Bitcoin beat. Shares are up 110% since the first of the year.
But that doesn’t mean they’ll stay there. Former presidential candidate and current political activist Ralph Nader believes that an inevitable TSLA deflation could harm the general market.
“When the stock market bubble implodes, it will have been started by the surge in @Tesla shares beyond speculative zeal,” Nader tweeted this morning.
Historically speaking, whenever a stock surges like TSLA has, a dip soon follows. Especially when it caps-off an already impressive several-months-long rally.
Tempting as it may be, buying-in to the Tesla hype (right now, at least) could be extremely dangerous. The time to be excited about a stock isn’t when it’s trading at an all-time high, but instead, when bears leave the stock looking oversold.
Plenty of speculators purchased their very first Bitcoin back when it was trading near $20,000. Every single one of them got burned in the ensuing crash just a few days later.
And yes, Tesla stock, unlike Bitcoin, is supported by an actual business that generates revenue, along with several industry-disrupting products.
But at present, the valuation metrics have gone out the window. For all intents and purposes, TSLA might as well be a digital currency. Its current value has nothing to do with what the underlying company is, but what it could be down the road. Bitcoin, which serves primarily as “digital gold” for now, is valued in the same way.
And if Bitcoin’s past performance is any indication, Tesla investors will want to stay nimble. Because if TSLA starts falling, a collapse could soon follow.
One that, if bulls start to cash-out, could be as equally spectacular as the stock’s current moonshot.
Just in the opposite direction.
