Tesla lifted to Outperform at Baird on ‘physical AI inflection’

Investing.com -- Baird has upgraded Tesla (NASDAQ:TSLA) to Outperform, saying investor focus is shifting toward the company’s role in a coming “physical AI” era.

The brokerage firm raised its price target to $548 from $320, a premium valuation it argues is warranted given Tesla’s long-term opportunities.

“Relatively muted stock reactions following a series of less-than-stellar quarters and investor inbounds regarding long-term initiatives lead us to believe focus has increasingly shifted to the future for TSLA,” analyst Ben Kallo said in a Friday note.

Despite three straight quarters of soft results, Tesla shares have risen 24% in the past month, outperforming the 3% gain in the broader S&P 500 index.

“We now expect shares to Outperform as TSLA is increasingly viewed as the leader in physical AI,” Kallo said.

A key part of Baird’s note centers on Tesla’s newly proposed pay package for Elon Musk, which ties potential rewards to ambitious product and financial milestones.

The board’s framework includes targets such as delivering 20 million vehicles, reaching 10 million active Full Self-Driving (FSD) subscriptions, putting 1 million robots and 1 million robotaxis into operation, and achieving market capitalization thresholds up to $8.5 trillion.

Baird conducted scenario analysis based on these goals. In its minimum case, Tesla could reach a market cap above $5.5 trillion by 2035, translating to a share price of roughly $1,400 after accounting for dilution.

Its bull case assumes volumes double those milestones, pointing to a potential valuation near $12 trillion and shares above $3,000.

“We outline this scenario to show that IF these milestones are achieved, the volumes and financial profile will almost certainly fall between these two cases,” Kallo said.

The analyst also points to multiple upcoming catalysts, including a next-generation reveal of the Optimus humanoid robot, expansion into new robotaxi markets, the shareholder vote on Musk’s compensation plan, and the rollout of more affordable vehicles.

He also flagged growth opportunities in Tesla’s energy storage and software businesses, though these were not included in the pay package analysis.

Moreover, Kallo said that Musk’s recent $1 billion share purchase was a positive signal.

While they still expect near-term fundamentals to be uneven, Baird sees Tesla’s long-term positioning as compelling.

“Lots of irons in the fire,” the analyst wrote, citing expanding production, new vehicles such as the Tesla Semi, and the potential scaling of software and recurring revenue streams.