Elon Musk Buys Tesla Stock Again—Should You Follow?

Tesla's Stock Surges on Elon Musk’s Recent Purchase

Tesla's stock experienced a significant surge following Elon Musk's recent purchase of shares, marking the first time he has done so since 2020. This move is seen as a strong indicator of confidence from the company's CEO and could be an encouraging sign for investors looking to capitalize on the stock.

The stock price climbed as high as $425.70 before settling at $410.26, reflecting a 3.6% increase for the day. This movement helped eliminate year-to-date losses, resulting in a nearly 2% gain for the year. In comparison, the S&P 500 and Dow Jones Industrial Average saw more modest gains of 0.5% and 0.1%, respectively.

Musk's purchase involved 2.6 million shares valued at approximately $1 billion, which increased his total holdings—excluding stock options—to around 413 million shares. This action demonstrates his belief in the company's future prospects and aligns with the common investor sentiment that when company executives invest in their own stocks, it often signals positive momentum.

One of the key factors behind Musk’s confidence may be Tesla's advancements in artificial intelligence (AI). The company is leveraging AI computing to enhance its self-driving capabilities and develop humanoid robots capable of performing useful tasks. Tesla launched a self-driving taxi service in Austin, Texas, in June, and plans to introduce a significant number of robots by 2026. Musk has indicated that these ventures have the potential to generate trillions of dollars in value for shareholders.

This purchase marks Musk's first open-market transaction since February 2020, when he acquired 13,037 shares for about $10 million. Since then, Tesla's stock has undergone two splits, which can impact the perceived value of such investments.

Despite the positive developments, it is important for investors to approach Tesla stock with caution. The current valuation is notably high, with Tesla trading at about 168 times estimated 2026 earnings, according to FactSet. This is significantly higher than the average of 28 times for the rest of the Magnificent Seven stocks. Garrett Nelson, an analyst at CFRA, has downgraded Tesla to a "Sell" rating, stating that the stock's valuation has become disconnected from its fundamentals.

Some analysts argue that the high valuation might be due to declining car sales, which could temporarily inflate the price-to-earnings ratio. However, Tesla remains optimistic about its future growth, driven by AI innovations and the potential for new revenue streams.

Tesla delivered approximately 721,000 electric vehicles in the first half of 2025, representing a 13% decline compared to the previous year. This trend highlights the challenges the company faces in maintaining consistent growth.

Investing in Tesla can be a volatile proposition, given the stock's history of dramatic swings between euphoria and fear. Some investors prefer to buy during periods of uncertainty, as this can provide a better valuation buffer. Gary Black, co-founder of Future Fund Active ETF, sold his Tesla stock at around $358 and believes the fair value is closer to $310. He is currently looking for a price below $240 to re-enter the market.

While Musk's purchase is a clear vote of confidence, it represents only a small portion of his overall net worth, which is estimated at around $460 billion by Forbes. Additionally, Musk holds about 300 million stock options valued at roughly $150 billion, stemming from a controversial 2018 pay package approved by shareholders.

Looking ahead, Tesla shareholders will soon vote on a 2025 pay package for Musk that could award him 425 million incentive-laden options. If he meets all the targets, these options could be worth approximately $1 trillion. Key milestones include achieving $400 billion in annual EBITDA and reaching a market capitalization of $8.5 trillion.

At $8.5 trillion, Tesla's stock would be valued at roughly $2,100 per share, considering Musk's options. While this figure excites many Tesla bulls, regular investors should balance their enthusiasm with caution. A measured approach can help navigate the uncertainties associated with investing in such a dynamic and high-profile company.