Tesla Stock Slips as Former Lehman Trader Warns of AI Bubble

Tesla stock slipped 1% in overnight trading as speculation builds about a potential merger between Tesla and SpaceX, its parent company. The move comes as Larry McDonald, a former Lehman Brothers trader and founder of The Bear Traps Report, warns that investors may be getting carried away by SpaceX's valuation.

McDonald compared the current market situation to the dot-com bubble in 2000, when Amazon's stock lost more than 90% of its value. He believes a $2 trillion valuation for SpaceX leaves little room for Tesla-like returns and that investors are pricing in future earnings years in advance without considering competition, delays, and execution risks.

The market is becoming overly dependent on the AI narrative, McDonald said, with investors captivated by companies like SpaceX, OpenAI, and Anthropic. He warned that rapid index inclusion could force retirement funds to buy large amounts of SpaceX stock regardless of valuation, putting passive investors at greater risk.