Tesla stock extends rally as Elon Musk-Donald Trump alliance fuels gains

Tesla Inc. fans have been reinvigorated by Donald Trump’s presidential triumph. The stock’s climb has been seemingly unstoppable as investors pile into the shares, confident that a second Trump term will bring windfalls to the Elon Musk-led electric vehicle maker.

All together, the stock has advanced over 39%, adding more than $300 billion in market capitalization since the Nov. 5 election. Shares closed up about 9% at $350 on Monday.

Market professionals point to the fact that Tesla is a classic “momentum" stock, where both gains and losses tend to snowball quickly when investor sentiment takes a sharp turn in either direction.

“Musk went all in on a Trump victory, so it’s understandable why the market would view Tesla as a beneficiary," said Steve Sosnick, chief strategist at Interactive Brokers. “Combine that with the market’s love for buying dips, chasing rallies, and often using leverage or options to do so, and we get a rally that borders on ludicrous mode."

Options traders are betting on further gains. The premium of three-month calls over puts is at the highest since early 2021, with sizable volume in contracts looking for a rally to $450 and above.

That would put Tesla shares on course to surpass an intraday all-time high of $414.50, set during the pandemic when retail traders drove up prices on many popular stocks. Some sell-side analysts are embracing the renewed enthusiasm.

A Trump White House will be a “game-changer" for Tesla’s self-driving and artificial intelligence efforts, according to Wedbush analyst Daniel Ives, who raised his price target on Tesla to $400 from $300 earlier. He estimates that the “AI and autonomous opportunity is worth $1 trillion alone for Tesla." The analyst maintained his buy-equivalent rating on the stock.

To Interactive Brokers’ Sosnick, a favourable regulatory environment, whether in a general sense or specifically tailored to Musk’s ventures, could in theory smooth the way for an expansion of Tesla’s self-driving technology.

Wall Street price targets haven’t kept pace with the stock’s run and now imply about a 32% drop over the next 12 months. Some analysts have expressed scepticism over the magnitude of the rally, saying that it’s likely overestimating any gains that Tesla can reap from the Republican’s electoral victory.

Tesla’s 14-day relative strength index, a gauge of bullish and bearish price momentum, closed at 81 on Monday. A level above 70 is often considered a technical signal that a drop may soon be in store.

“Despite possible benefits from the election, Tesla stock looks overvalued," Seth Goldstein, an analyst at Morningstar, said last week.

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