Most investors understand that you typically have to pay a premium price to buy good growth stocks. But shares of electric vehicle (EV) maker Tesla (NASDAQ: TSLA) are taking the premise to an extreme. The stock's currently priced at 200 times this year's projected earnings of $1.75 per share, and over 160 times next year's expected earnings of $2.16 per share. That's expensive by any standard, including in the technology sector.

The valuation (sort of) makes sense, though, when you understand what Tesla is in the process of becoming. Soon, it will no longer be an EV company that also makes and markets solar panels and energy-storage batteries. Instead, the plan is for it to be a robotics and robotaxi outfit that also manufactures electric vehicles. Investors are pricing the stock based on this hoped-for future rather than what the business is doing in the present. Here's what they need to know.

Comparing and contrasting

Although the company is winding down its solar roof tile business, it still makes and markets its own solar panels, as well as the energy storage equipment that makes these panels practical power sources. Moreover, EVs remain Tesla's biggest business -- accounting for $20.5 billion of its $28.2 billion in Q2 revenue -- and Tesla is still the second-biggest name in the global EV market, right behind China's BYD. Moreover, last quarter's year-over-year top-line growth of 26% suggests the company still has a little bit of magic left.

Its stock's price, however, has left the organization's fiscal results in the rear-view mirror.

Shares aren't expensive simply because Tesla is struggling to turn its revenues into profits, to be clear. The stock's also expensive by revenue standards, trading at 13 times trailing-12-month sales versus the S&P 500's trailing price-to-sales ratio of 3.7. For further comparison, the S&P 500 is currently trading at a trailing price-to-earnings ratio of 23.5 and a forward P/E of just under 20. Based on these numbers, Tesla trades at valuations between 4 and 10 times those of the average publicly traded company.

It's not like we've never seen something like this before, though. Sometimes, a company eventually grows into such steep valuations. Think Amazon, for example.

The market's pricing in growth that hasn't even started yet

Getting straight to the point, investors are pricing in a large amount of the future growth they expect from Tesla, as opposed to pricing the stock based on the business's current results. And there are two key components to this highly anticipated future. One of them is robotaxis.

Tesla's robotaxi ride-hailing venture, which at this early stage still relies largely on its Model Y vehicles, is up and running in a handful of markets. Its purpose-built Cybercab, however, represents the next generation of this venture's tech. Although the company has only rolled out a small fleet of Cybercabs in one market so far-- Austin, Texas -- it's reportedly planning to launch Cybercab-supported robotaxi services in a dozen states before the end of this year.

Although the development of these autonomous taxis has been agonizingly slow, once they're ready for wider-spread commercialization, the deployment is apt to happen fast. This will plug Tesla into a robotaxi market that Goldman Sachs expects to grow from nearly nothing now to $415 billion globally by 2035, with $48 billion of that being generated within the United States alone.

Image source: Tesla.

The other factor pumping up Tesla stock's premium valuation is arguably even more exciting. That's Tesla's entry into the AI-enabled humanoid robotics space. CEO Elon Musk suggested early this year that the company would be commercially selling its humanoid Optimus robots at scale by the end of 2027, and he hasn't said anything since to suggest that the timeline will have to be pushed back.

The commercial debut of these robots could be game-changing for the company -- not to mention the world -- in light of Musk's assessment that "Optimus will be not just Tesla's biggest product ever, but probably the biggest product ever." Although that remains to be seen, Barclays believes the market for humanoid work robots will grow to $200 billion annually by 2035. While even Musk concedes his company is facing stiff robotics competition from China, just capturing a healthy fraction of this potential business could be a boon for Tesla and its shareholders.

The growth Tesla needs from robots and robotaxis

So how much optimism about the robotics and robotaxi businesses are investors pricing in here? It's difficult to say for sure. But we can come up with a rough idea.

As it stands right now, Tesla is on pace to do on the order of $106 billion worth of EV, solar panel, and battery-storage business this year, en route to a top line of over $120 billion next year. How much more revenue would the company need to generate with robotaxis and Optimus to make its current $1.4 trillion market cap make sense? Even allowing for the type of premium valuation that many technology stocks achieve, Tesla would need a top line on the order of $300 billion to $400 billion for its current stock price to reflect a valuation in line with its peers. That's about 3 times its current sales, and most of that growth will need to come from robots and robotaxis rather than EVs and solar, as both of those businesses are now running into competitive headwinds.

Or if you want to look at the matter through the lens of earnings, Tesla's earnings per share would arguably need to quintuple -- at a minimum -- to justify the stock's current price. That would put its annual bottom line in the ballpark of $10 per share (or hopefully more) to bring the stock to a valuation that's closer to that of a typical technology company. It's likely that to deliver that type of earnings growth will take improving contributions from all of the businesses it's going to be in for the foreseeable future.

And that's just to justify the stock's price today. For Tesla shares to validly grow in value, the company will need even more top- and bottom-line growth than that.

The thing is, if the outlooks for the worldwide robotaxi and humanoid AI robot businesses are anywhere near on target, Tesla may well reach these lofty sales and earnings numbers -- eventually.

The difficult part for current shareholders and interested investors will be the waiting and the volatility stemming from the uncertainty. While Cybercab is reportedly almost ready for widespread commercialization and Tesla's Optimus robots are supposed to go into scaled-up commercial production before the end of 2027, don't forget that Musk has something of a penchant for underestimating time frames. That could leave things very unpredictable for this stock in the meantime.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, and Tesla. The Motley Fool recommends BYD Company and Barclays Plc. The Motley Fool has a disclosure policy.

The truth is, in the long run, you'd probably be just fine with any of them. If you've only got room in your portfolio right now for one new position among "Magnificent Seven" members Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT), however, it should arguably be Google parent Alphabet. Here's why.

Why not Microsoft or Amazon?

If you already hold stakes in Amazon or Microsoft, you're hardly doomed. Microsoft remains the centerpiece of the personal and professional computing business, and Amazon is still the king of e-commerce as well as the leader in the cloud computing market.

In a valuation environment that leaves no room for error or weakness, however, those two bring company-specific concerns to the table that could turn into stumbling blocks.

Image source: Getty Images.

For Microsoft, the key concern is its waning relevancy within the workplace, or for that matter, at home. Although its productivity software titles like Word and Excel are still popular enough, Microsoft Office's dominance in the basic enterprise software arena continues to wane. It's ceding ground to Google Workspace, which is increasingly seen as less restrictive to use.

The company's also losing ground on the chat-based AI assistant front. Sure, Microsoft recently touted the fact that its Copilot app serves 30 million paying Microsoft 365 Copilot customers.

Yet take a look at the details. While this professional version of Copilot integrates nicely into the cloud-based/subscription-based version of Microsoft Office 365, the AI tool isn't necessarily being sought out by users. Rather, many of these subscribers are being added to existing Office 365 subscriptions, whether those subscribers asked for it or not (very likely at nominal additional costs). And it's still tethered to productivity software that's slowly losing market share. Meanwhile, the free-to-use consumer-facing version of Copilot only accounts for about 3% of the AI chatbot market while ChatGPT boasts a commanding share of 79%, according to data from Statcounter.

Statcounter adds that Microsoft's flagship operating system, Windows, is also losing ground. It slid to a record low market share of 63% in August thanks to soaring use of Apple's OS and even open-source Linux, both of which reached record market shares that month. In this vein, Microsoft has now reported two consecutive quarterly declines in Windows' revenue.

Connect the dots. It's not doing anything "wrong," per se. Microsoft's cloud business appears to be thriving, in fact, with revenues up 27% year over year a quarter ago, thanks to AI-driven demand. The company's just running into headwinds on too many other fronts -- even its video gaming arm, which suffered a 10% slump in revenue for the quarter ending in June.

As for Amazon, the worry is simpler and far more straightforward. It's planning on spending an enormous sum on capital investments this year -- mostly on AI infrastructure -- with no assurance that this capex will curb the deterioration in its share of the cloud computing market. Though it's on pace to shell out $220 billion on capital expenditures in fiscal 2026, numbers from Synergy Research Group indicate Amazon Web Services' market share has continued shrinking from 2020's peak of 34% to 28% as of Q2 of this year. Microsoft Azure has also been sliding, by the way. Meanwhile, third-place Google Cloud has been gaining share.

Data source: Synergy Research Group. Chart by author.

Sure, there's more to both companies than their cloud businesses. But it's difficult to deny that every technology company is prioritizing the cloud opportunities being driven by AI's growth. These two names aren't knocking it out of the park on this front.

Why Alphabet

Google parent Alphabet is knocking it out of the park on the cloud computing front, of course, reporting 82% year-over-year revenue growth for this arm during the second quarter. Whatever it's doing (particularly as it pertains to AI) is clearly working.

Moreover, unlike Microsoft and Amazon, everything else Alphabet is doing is also working well.

Take its search business as an example. Google's advertising revenue -- including YouTube -- grew by more than 14% during the second quarter, with search-based advertising revenue specifically improving 15%. Subscription-based revenue and device revenue (Google makes its own smartphones and owns the Android mobile operating system, which funnels people to the Play Store) grew by more than 15% year over year.

The company is demonstrating strength in ways that don't appear directly on its income statement, too. Statcounter's numbers suggest that Android is at least maintaining its leading share of 67% of the worldwide mobile operating system market. And within the United States, TV ratings agency Nielsen reports YouTube is the most-watched streaming platform in terms of total viewing time, and is growing its share largely at the expense of venerable Netflix.

This leadership doesn't directly generate revenue. It does, however, confirm that Alphabet is doing the things that generate revenue, and doing them well.

Now, and for a while

This won't always be the case, of course. There was a time when Microsoft could do nothing wrong. Ditto for Amazon. Those times may come again for those two, just as a time may come when macro conditions don't favor Alphabet's strengths as much.

The environment right now and for the foreseeable future, however, is one that favors Google's parent far more than it does the iconic software and e-commerce giants.

The personal computing space has been democratized, for instance, not just by more hardware choices (mobile devices are now viable alternatives to traditional desktops and laptops), but also by the wider adoption of options other than Windows or Microsoft's productivity software. Amazon's early lack of in-house technological development capabilities, meanwhile, is still a key reason its cloud business is losing share to Alphabet.

Alphabet, conversely, entered this era of connected computing ideally positioned. Not only is Google Search a perfect jumping-off point for Alphabet's AI-powered chat assistant, Gemini, but the demand for more mobile computing has turned Android into a critical platform. Recently rising streaming subscription prices have also made YouTube more attractive as a free-to-use alternative.

This backdrop and these conditions will eventually change. They aren't apt to change for a while, though, which means they should provide sustained tailwinds for Alphabet. Yes, the stock has essentially drifted since May, but this dynamic is much bigger than a few tepid months.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Netflix. The Motley Fool has a disclosure policy.