Elon Musk makes a lot of swashbuckling statements, but one in particular stood out last month. During Tesla's (US:TSLA) third-quarter earnings call, he said the company is focused on building the future of energy, transport, robotics and AI at a time when others are managing near-term trends. As a result, he predicted that “Tesla will become the most valuable company in the world and probably by a long shot”. The share price rallied 12 per cent after the announcement.
Since the US election result, the shares have surged further still. If Musk is right, $340 for a stake in the world’s soon-to-be most valuable company looks like a steal. But do we underestimate the value of growth stocks? The St Petersburg Paradox suggests that we don’t behave rationally when the potential pay-offs are huge.