Tesla’s valuation has been turning heads in the financial world. With a forward price-to-earnings ratio of 97.1x, investors are paying almost double compared to Nvidia, whose forward P/E stands around 48.5x. This is despite Nvidia’s stock being up 800% since 2023 and nearly 200% so far this year.

The rest of Tesla’s peers, including the Magnificent Seven, are all trading at valuations above the S&P 500’s average of around 22x. These companies have been the source of most of the market’s earnings growth in recent quarters. However, Tesla’s valuation is in a different stratosphere compared to its automaker peers, with GM and Ford trading at 5.1x and 6.5x next year’s earnings, respectively.

According to DataTrek’s Nicholas Colas, around 45% of the valuation of the S&P 500 as a whole comes from current earnings, with the rest coming from the historically backed optimism that earnings will continue to grow. In contrast, 91% of Tesla’s valuation is based on future earnings growth. This suggests that Tesla is a faith-based stock rather than one whose valuation is grounded in near-term fundamentals.

Investors are banking on Tesla’s robotaxi thesis as a paradigm shift for the company. However, caution is advised when it comes to valuations. While the S&P 500’s average forward P/E is around 19x, the range of outcomes is much wider for individual companies. History is littered with both the losses and missed gains of investors who placed too much weight on whether a company was “overvalued” by the book — and got steamrolled by inertia and sentiment. Especially by a Tesla.