Tesla stock is surging around 3%, but analysts are growing cautious

Shares of Tesla rose 2.8% to $378.06 in early trading Monday, tracking a broader rebound in US equities as geopolitical tensions showed signs of easing.

Investor sentiment remains divided, with the stock increasingly driven by expectations around future technologies rather than its core automotive business.

Markets rallied after President Donald Trump said Washington and Tehran were in talks and that strikes on Iranian energy infrastructure had been paused.

The comments boosted investor sentiment, with the Dow Jones Industrial Average jumping 648 points, while the S&P 500 and Nasdaq Composite gained 1.2% and 1.4%, respectively.

Musk unveils ‘Terafab’ chip vision

Alongside the broader market tailwind, Tesla drew attention after Chief Executive Officer Elon Musk outlined plans for a large-scale semiconductor manufacturing initiative dubbed “Terafab.”

The project, announced over the weekend, will be a joint venture between Tesla, xAI and SpaceX, as Musk pushes to vertically integrate chip production within his broader artificial intelligence ambitions.

The facility is expected to require tens of billions of dollars in initial investment.

Tesla plans to spend around $20 billion on equipment in 2026, up from less than $9 billion in 2025, though Terafab-related spending is not included in that forecast.

Musk’s long-term ambition is to produce chips at a scale requiring a terawatt of electricity — equivalent to powering roughly one billion advanced AI chips annually.

Initial production is targeted for late 2027, with volume output expected by 2028.

The Terafab initiative is aimed at addressing an anticipated shortage of advanced semiconductors needed for AI applications, including autonomous vehicles and robotics.

Musk indicated that as much as 80% of the facility’s output could be deployed in space, where SpaceX would handle AI computing workloads traditionally managed by hyperscalers on Earth.

The fab is expected to focus on cutting-edge two-nanometer chip technology, placing it at the forefront of semiconductor manufacturing.

Analysts cautious on execution and costs

The ambitious scale of the project has drawn mixed reactions from Wall Street.

As per an Investing.com report, analyst Trip Chowdhry issued a sell recommendation, setting a $150 price target for 2026 and arguing that Tesla’s AI-driven investment thesis has weakened.

He compared the situation to past technology cycles where investor enthusiasm outpaced execution.

Meanwhile, Barclays maintained an Equalweight rating with a $360 price target but warned that the cost of the Terafab project could be significantly higher than current expectations.

Analyst Dan Levy said Tesla’s capital expenditure requirements could exceed $100 billion over time, noting that even prior bullish estimates may prove conservative given the scale of the initiative.

However, Levy added that investors who are optimistic about Tesla appear willing to absorb the high spending, viewing it as necessary to secure long-term leadership in AI infrastructure.