• Tesla's stock has surged 90% since April and 25% this month, with shares reaching $410.04 by September 15.
  • Morgan Stanley's Adam Jonas argues the stock remains under-owned by institutions but sees huge potential in 'physical AI'.
  • Recent product gains include major FSD upgrades and the integration of Grok into vehicles for an immersive in-car experience.

Tesla's remarkable rally to over $410 a share has captured Wall Street's attention, with Morgan Stanley's top auto analyst Adam Jonas outlining his bullish case at what many see as a critical inflection point for the electric vehicle maker. The surge represents a significant milestone that has analysts reframing Tesla not just as a car company, but as an artificial intelligence and robotics play.

Jonas noted in his recent analysis that despite the impressive run-up, Tesla remains surprisingly under-owned by institutional investors. At a recent Laguna Conference, only 5 of 120 investors held Tesla shares, suggesting potential for increased institutional adoption if the company's AI narrative gains broader acceptance.

The core of Morgan Stanley's thesis centers on what they term 'physical AI'—the intersection of artificial intelligence with real-world robotic applications. This positioning gives Tesla one of the largest addressable markets among the so-called 'Magnificent 7' technology stocks, according to people familiar with the matter.

Elon Musk's role as a 'talent magnet' remains crucial to this story. Jonas highlighted that Musk's long-term commitment is essential for attracting top AI and robotics talent, despite ongoing debate about his compensation package reportedly valued at $1 trillion. 'Without Musk's vision and ability to attract engineering talent, the AI thesis doesn't hold together,' said one analyst who requested anonymity to discuss competitor research.

Recent product developments appear to support the optimism. Tesla has rolled out major upgrades to its Full Self-Driving system, representing what analysts consider significant technological advancements. Perhaps more notably, the integration of Grok—X's virtual assistant—into Tesla vehicles marks what Jonas calls 'the biggest upgrade for an immersive in-car experience,' effectively blending Musk's technology ecosystem with Tesla's automotive platform.

The buying experience has also seen improvements, with sources noting a smoother process that's helping conversion rates. Technical analysts point to Tesla's break above the $360.76 channel resistance level as triggering a significant buy signal, with the stock maintaining momentum above key technical levels.

Despite the bullish narrative, risks remain elevated at current valuation levels. The stock's volatility continues with daily trading volumes exceeding 168 million shares recently, reflecting both enthusiasm and skepticism about Tesla's ability to execute on its AI ambitions beyond automotive manufacturing.

Attempts to reach Tesla for additional comment on institutional ownership levels were not immediately successful. Company representatives typically defer to public filings and statements for such metrics.

Correction: An earlier version of this article misstated the number of investors at the Laguna Conference; it was 120, not 125.