Lack of AI Association Pushing Tesla Stock Down Further

The not-so-secret ingredient that’s been fueling gains for big tech since its fourth quarter has definitely been artificial intelligence (AI). The lack of AI tailwinds for Tesla could be pushing the company’s stock down further.

The stock has decreased by more than 20% for the year, while its “Magnificent Seven” peers have managed to shake off a slow start to 2024.

“That’s part of a growing debate on Wall Street, where shares of Elon Musk’s electric-vehicle maker are tanking as the rest of the market rallies — and the company is warning that things may not get better for a while,” a Yahoo Finance report said, noting that Magnificent Seven stocks have been leading the gains for the S&P 500, while “traders are now wondering if Tesla’s name belongs next to those other powerhouses.”

As mentioned, one of the reasons could be a direct connection to AI, or in the case of Tesla, a lack thereof. AI’s bright growth prospects are helping companies like Amazon and Microsoft, given their investments in AI technology.

“Although Elon Musk would probably disagree, investors don’t see Tesla as an AI play like most of the other Magnificent Seven stocks,” said Matthew Maley, chief market strategist at Miller Tabak + Co. “We have a much different backdrop for Tesla and the others in the Mag Seven — the demand trend for Tesla products is fading, while it’s exploding higher for those companies that are more associated with AI.”

A ‘One Product Company’

Another challenge that Tesla has compared to its peers is its product diversification. While big tech peers like Amazon can leverage a wide variety of online retail products to offer the masses, that’s not the case with Tesla, according to some analysts. With the demand for electric vehicles (EV) waning as of late, it puts the company in a precarious position.

“The challenge is that Tesla has become a one-product company — the Model Y, with every other initiative either not a meaningful contributor to revenue and earnings or still a bit of a science project,” said Jeffrey Osborne of Cowen. “Being a one-product company and mismanaging the timing of product cycles can create periods of pain, which is what we are in now until the next generation vehicle comes out next year or in 2026.”

If bearishness persists further, this should help the Direxion Daily TSLA Bear 1X Shares (TSLS). Of course, if Tesla can reverse its bearish trend, traders who see the recent pullback as an opportune time to buy into Tesla’s stock can also take the opposite side of TSLS. For a return to bullishness, they can use the Direxion Daily TSLA Bull 1.5X Shares (TSLL).

TSLS Chart

TSLS data by YCharts

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