Tesla with a market cap of $8.5 trillion? Not a Fairy Tale

Tesla (NASDAQ:TSLA) proposed a record-setting new pay package for CEO Elon Musk last week that will go to a shareholder vote on November 6. For Musk, the deal could be potentially worth up to $1 trillion over the next decade, which makes it the largest CEO compensation offer in corporate history if all targets are met.

To unlock the full payout, Tesla's (NASDAQ:TSLA) market value must reach at least $8.5 trillion within ten years. For comparison, Tesla (TSLA) closed on Friday with a market cap of $1.3 trillion.

Deepwater Asset Management analyst Gene Munster said the key for Tesla (TSLA) is that AI will have a bigger impact on our lives than most can imagine. "Its ability to give birth to new forms of computing, such as physical AI, is the foundation that can turn that fairy tale into reality," he highlighted.

Munster said Tesla (TSLA) can capitalize on the potential around physical AI through FSD, robotaxis, and Optimus, with Optimus being the biggest of those opportunities. He also pointed to the last lever in the $8.5 trillion story as being xAI.?

While Musk has said he has no plans to combine Tesla (TSLA) and xAI,?Munster and team believe a combination makes sense on three levels. First, he thinks TSLA's market cap would likely jump on the announcement of a deal, unlocking pent-up retail demand for xAI through Tesla (TSLA) stock. Second, Tesla (TSLA) is seen leveraging xAI’s research to help build its physical AI models. Secondly, xAI was noted to have significant business potential of its own, especially via its Grok AI model. Thirdly, the xAI consumer chatbot was highlighted as gaining traction beyond a small base of roughly 20 million daily active users. "With xAI’s next funding round rumored at $175–$200B, the company remains small enough for Tesla to consider acquiring within the next year," reasoned Munster.