Valuation logic fails? Tesla's profit outlook plummets by 56%, yet the target price is raised to $410

Wall Street is sending mixed signals about Tesla: analysts' average forecast for its net profit in 2026 has plummeted by 56% within 12 months, sharply revised down from $14.1 billion to $6.1 billion, reflecting deepening skepticism about its profitability. However, during the same period, the average target price for the stock has been raised from around $338 to nearly $410.

This rare divergence reveals the current market valuation logic for Tesla: its stock performance is increasingly anchored to the long-term visions of CEO Elon Musk, such as humanoid robots and autonomous driving, rather than the company's recent vehicle sales and financial fundamentals.

Tesla is set to release its latest financial report soon. While the market closely watches its performance guidance, analysts are more eager to understand its specific progress in emerging business areas like autonomous driving and robotics, as this information may become key to supporting the current high valuation expectations.

Divergence Between Valuation and Profit Expectations

The divergence between Tesla's current stock price and its profit expectations has reached an "extremely unusual" level. Typically, an increase in target price is often accompanied by an improvement in profit expectations, rather than a significant downward revision, which contradicts traditional valuation logic.

Currently, Tesla's forward price-to-earnings ratio has exceeded 195 times, significantly higher among the "Tech Seven." This group has an overall forward price-to-earnings ratio of about 29 times, while core members like Apple, Alphabet, Microsoft, and Amazon generally have valuations ranging between 25 to 30 times.

Among the S&P 500 constituents, Tesla's price-to-earnings ratio is also the second highest, only behind Warner Bros. Discovery, which is in the process of a merger, and far above the third-ranked Palantir. HSBC analyst Mike Tyndall noted in a recent report:

"If its valuation were closer to the industry average, we might consider the risk-reward ratio of the stock to be attractive."

However, the reality is that other members of the "Tech Seven" generally possess "higher profitability and more abundant cash flow," yet their valuations are significantly lower than Tesla's. This contrast highlights that the market's premium pricing for its long-term vision has deviated from conventional fundamental frameworks.

Betting on Future Vision Rather Than Current Performance

To better understand the valuation heterogeneity of Tesla among the "Tech Seven," a key phenomenon can be observed: over the past year, although the target prices for all members of this group have been raised, only Tesla's profit expectations have significantly deteriorated during the same period.

The "vision premium" implied by Tesla's current stock price has become the core of market divergence. The pricing logic for this stock has clearly deviated from the fundamentals of its electric vehicle sales, shifting more towards Musk's long-term prospects for humanoid robots and fully autonomous driving technology. While these areas have high growth potential, Tesla has yet to prove its sustainable profitability in such businesses.

After Tesla reported lower-than-expected fourth-quarter vehicle deliveries, Piper Sandler analyst Alexander Potter noted in a report:

"The importance of delivery volume indicators has significantly decreased. Instead, Tesla's performance in 2026 will primarily be driven by its substantial progress in artificial intelligence and robotics."

Potter maintains an "overweight" rating on Tesla stock, but he also warns:

"If there is a lack of further disclosure regarding new business developments, market attention may once again shift to its weak short-term profit expectations, thereby putting pressure on the stock price."

Analysts Choose to Bet on Musk

This tension is at the core of the debate surrounding the stock's high valuation. Canaccord Genuity analyst George Gianarikas believes that the 'generational growth opportunities' in robotics, autonomous driving, and energy storage make Tesla's price justified.

Jonestrading Chief Market Strategist Michael O'Rourke states that the fundamental shift in Tesla's strategy also makes it a rare case where expected earnings often significantly deviate from the stock's target price. He says:

"Analysts are willing to value the company based on uncommercialized businesses. In short, they prefer to bet on Musk rather than against him."