Nvidia’s impressive sales guidance and AI-related business have caused its stock to soar by almost 27% (NVDA ticker). Tesla’s stock, on the other hand, has only increased by 1.1% with a risk hidden behind Nvidia stock price’s reaction. NVidia’s stock is on track to surpass Amazon’s biggest one-day gain in market value at $191 billion, adding $189 billion to its stock market value.

Analyst Pierre Ferragu predicts that Nvidia sales may hit $100 billion in 2027, up from $43 billion in 2023. Tesla’s stock gain of over 740% in 2020 proved that EVs were the next big thing. However, Tesla’s shares are down 22% over the past 12 months, and off about 40% from their August 52-week high due to EV competition, rising interest rates, and falling car prices leading to weaker profit margins. Despite this, retail investors still love Tesla stock, with over 50% of shares held by small investors.

JPMorgan data shows that investors have been selling Nvidia and buying Tesla stock. Falling out of favor with a large group of investors can lead to pressure on valuation multiples. Tesla’s stock trades at about 38 times 2024 earnings estimates, whereas the S&P 500 trades at about 18 times, and Nvidia’s stock trades at 41 times. Tesla’s AI teams are teaching cars to be self-driving, which could potentially add $40 per share to their stock. Gary Black the Future Fund Active ETF co-founder refers to this as a “free call option,” meaning it is not included in most valuations but can benefit a stock if things break favorably.

However, not everyone is convinced that Tesla’s FSD software will solve the self-driving issue soon, leaving investors to value Tesla based mostly on its car business. There is a risk of hype leading to stocks getting ahead of themselves, which is also a concern for Nvidia’s stock.

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