Tesla's S&P 500 entry could spark a $8 billion buying spree, Goldman Sachs says

elon musk Elon Musk.

  • Large-cap mutual funds are on the verge of fueling a massive rally for Tesla shares, Goldman Sachs said Thursday.
  • The automaker is set to join the S&P 500 on December 21 as one of its 10 most valuable members.
  • Of the 189 large-cap core funds tracked by Goldman, 157 funds managing roughly $500 billion don’t yet hold Tesla stock, the bank said.
  • If the funds aim to hold Tesla at benchmark weight when it joins the index, they will buy about $8 billion worth of shares soon after the automaker’s inclusion, Goldman added.
  • Watch Tesla trade live here.

Tesla’s planned inclusion in the S&P 500 already lifted shares through recent sessions, but Goldman Sachs sees a tidal wave of mutual-fund cash fueling another rally in December.

S&P Dow Jones Indices revealed on Monday that the automaker will join the benchmark index on December 21. With a market cap of roughly $473 billion, Tesla will enter the index as one of the 10 most valuable members.

The news ended months of speculation as to when the automaker would join the index, and bullish investors drove shares 13% higher the day of the announcement.

Yet some of the market’s biggest players haven’t yet piled in. Large-cap mutual funds tracking the S&P 500 waiting on the sideline can fuel massive demand for the shares once Tesla officially joins the index, strategists led by Arjun Menon said Thursday.

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“Of the 189 large-cap core funds in our universe, 157 funds that manage around $500 billion in assets under management did not hold Tesla on September 30,” the team said. Those funds are set to buy roughly $8 billion worth of shares, assuming they aim to hold the automaker at benchmark weight, they added.

Tesla became eligible to join the index in July after reporting its fourth consecutive quarterly profit. The S&P 500 requires members be based in the US, trade on the New York Stock Exchange, Nasdaq, or Cboe, boast a market cap of at least $8.2 billion, and post four straight quarters of profitability on a GAAP basis.

If all criteria are met, a group called the Index Committee deliberates on whether the company should replace a current member of the index.

S&P Dow Jones Indices hasn’t yet revealed which member they’re removing to make room for Tesla.

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The automaker’s inclusion comes as some of its most notable skeptics turn more optimistic toward the company. Morgan Stanley upgraded its rating on Tesla to “overweight” from “equal weight” for the first time since 2017 on Wednesday, saying its software and services businesses present strong growth opportunities.

“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long term value creation arising from monetizing Tesla’s core strengths, driven by best in class software and ancillary services,” the bank’s analysts said.

Tesla traded at $495.62 per share as of 10:45 a.m. ET, up roughly 501% year-to-date. The company has 22 “buy” ratings, 41 “hold” ratings, and 20 “sell” ratings from analysts.

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