Tesla Stock Price Forecast as its $25B AI Spending Plan Rattles Investors

The electric vehicle juggernaut, Tesla, recently published its first-quarter results. Following this, Tesla stock price remained in a narrow range in the extended hours. TSLA dropped to $387, down front this month’s high of $410 as AI spending plans rattled investors.

Tesla Stock on Edge Amid AI Spending Boom

The Tesla stock price wavered after the company published its earnings and boosted its AI spending goals.

Tesla said that its revenue rose by 16% YoY in the first quarter to $22.3 billion. This revenue growth happened as the company increased the prices of its vehicles. This helped to offset the weakness in deliveries.

Automotive revenues rises by 16% to $16.2 billion, while the energy generation one fell by 12% to $2.4 billion. Also, the services and other revenue segment grew by 42%. These numbers were slightly better than what analysts were expecting.

Tesla’s net profit also continued rising. With this, the non-GAAP figure rose by 56% to $1.42 billion and its free cash flow soared by 117% to $1.4 billion.

Its numbers were better than expected. However, the main issue is that the company plans to ramp up its spending in the foreseeable future. The aims is to boost its position in the AI industry.

The company announced that it will spend at least $25 billion in the AI and robotics segment. This will hurt its free cash flow. Indeed, the management expects to have a negative FCF for the remainder of the year.

These funds will be invested in its Terafab project in Texas, which Tesla and SpaceX will own. Elon Musk believes that the company will need to build its own chips.

He emphasizes this as NVIDIA and AMD were not innovating fast enough. The challenge, however, is that building and operating a chip plant costs billions and takes years

The cash will also go towards its robotics business, which will focus on humanoid robots. Its robots will have both domestic and industrial applications in the long-term.

Tesla’s Robotics and AI Pivot Faces Headwinds

The challenge, however, is that the robotics industry is highly competitive. Also, it is still unclear whether Tesla’s robots will see more demand.

Remember that not all Tesla’s projects become successful, with the Cybertruck being the best example. Tesla spent over $10 billion building the product, which then became a big flop as demand waned.

In his statement, Elon Musk maintained his optimism about the humanoid even as analysts have maintained their skepticism.

On top of this, Tesla is working on the cybercab, a small vehicle without a steering wheel. Tesla hopes that this autonomous vehicle will become popular and lead to more sales in the future. The company will start manufacturing the vehicle later this year.

On top of this, Tesla is now working on a new smaller vehicle that will be much cheaper than the current Model 3. Its goal is to initially launch it in China and then expand it in Europe and the United States.

Tesla launches these initiatives to strengthen its market share. Competition from Nio, Xpeng, and Xiaomi intensifies.

Most importantly, the firm aims that these initiatives will help it justify its valuation. This makes it one of the most expensive companies in the US, with its forward PE ratio rising to nearly 200.

TSLA Stock Price Analysis

The daily timeframe chart shows that the TSLA share price has pulled back in the past few days. It dropped from $410 to $387, which coincides with the 50-day Exponential Moving Average (EMA).

On the positive side, the stock formed a falling wedge pattern. This normally leads to a strong bullish breakout over time.

Therefore, there is a possibility that it will retreat and retest the upper side of the wedge and then resume the uptrend. Tesla will likely end the year at $500 and above as traders react to its new initiatives.

However, a drop below the key support level at $357 will invalidate the bullish outlook. This will also point to more downside this year.