Tesla’s stock dropped more than two percent on Friday. It broke below the important four hundred dollar support level. Investors are now rethinking how much the company should be worth as the Federal Reserve takes a tougher tone and worries about an AI bubble grow.
The fall happened along with weakness in other big tech stocks. Nvidia slid almost three percent, and Amazon was also down about one percent.
Even with this pullback, Tesla is still up a little over two percent for the year. But the stock trades at a very high forward P/E of about two hundred times earnings. This means the price already assumes strong growth. There is very little room for any disappointment. When the mood turns negative, the stock becomes extra volatile.
The selloff grew worse after Federal Reserve officials pushed back on the idea of more rate cuts. This shift came despite a mixed September jobs report that showed unemployment at three point nine percent. Their message hurt risk assets the most, including growth and tech stocks.
Another big worry is the huge spending boom around AI. Investors are questioning if major tech companies can really justify the massive cost of building new data centers. Nvidia showed the same pattern as Tesla. It started the day strong after upbeat forecasts but then closed sharply lower. Chip stocks around the world fell too. SK Hynix plunged almost nine percent. Taiwan’s TAIEX index dropped more than three percent. These moves show that investors are beginning to doubt near-term earnings tied to AI demand.
The Nasdaq one hundred hit a two-month low, raising fresh concerns that stock prices may have climbed too far ahead of real performance.
Tesla’s break below four hundred dollars was an important technical signal. This level had been a strong floor. Once it failed, the stock headed toward the two hundred-day moving average near three hundred thirty eight dollars. Trading volume increased, showing strong conviction from sellers.
Still, Bank of America kept a four hundred dollar price target and a Buy rating. The bank believes Tesla remains well placed in electric vehicles, robotaxis, robotics, and energy storage. If big investors return, buying at lower levels could appear.
There were also other pressures. Elon Musk’s one billion dollar share purchase from September, made at about three hundred eighty nine dollars a share, is now losing money. Cathie Wood’s Ark Invest sold Tesla shares for four days in a row. Tesla also recalled more than ten thousand Powerwall units after fire issues. These headlines added more negativity.
The bull case says Tesla around three hundred eighty eight dollars could be a long-term entry point. The stock is down nineteen percent from its fifty two-week high of four hundred eighty eight dollars. Tesla still leads in electric vehicles, has the biggest fast-charging network, and continues to grow its energy storage business. In the third quarter, it delivered four hundred ninety seven thousand cars, a seven percent increase from last year. Long-term investors might see the three hundred ninety to four hundred range as a place to start averaging in slowly.
The bear case says the valuation is too high. There is strong competition from BYD in Asia. Europe saw Tesla’s sales fall forty percent from last year. There are also risks around the timing of robotaxi and robotics projects. Tech stocks may stay under pressure for several more weeks as the sector resets.
The simple truth is that Tesla behaves like a pure risk asset. It is not a defensive stock. Waiting for the price to move back above four hundred dollars and above the fifty-day moving average near four hundred thirty three dollars is the safer path before putting in new money.