For a second day in a row, a Wall Street analyst has downgraded Tesla stock (TSLA) after what seems to be an AI-fueled run-up.

Morgan Stanley analyst Adam Jonas is the latest to weigh in with the rare Wall Street cut and raise. Jonas downgraded Tesla to Equal Weight from Overweight but raised his price target to $250 from $200. Jonas’s move follows a similar downgrade by Barclays analyst Dan Levy yesterday.

While Jonas believes Tesla is an “AI beneficiary AND an auto company,” somewhat unrealistic expectations on AI hopes have brought the stock to what he sees as a fair valuation, and he is cautious about what’s next.

“I have to be up-front with you all. While the team has defended the Tesla OW rating all year, I did not see this 111% YTD rally coming (the S&P 500 is up 14% YTD, for context),” Jonas wrote candidly in his note. “We think it's understandable and are sympathetic to the changes in the market narrative around the name.”

Jonas said he and the Morgan Stanley team are not trying to call “the end” to the recent Tesla rally, and while there is still some investor skepticism out there on Tesla, meaning there might be more room to run, the risk-reward for investors now is now fairly balanced. Hence the rating downgrade — suggesting investors shouldn’t build up a bigger position in the name — and hiked price target at the same time.

Key to this discussion on what happened with Tesla shares recently is the AI run-up, most recently seen in names like Nvidia.

"While we understand why Tesla gets a serious mention in an AI conversation, we believe a re-rating on this theme is in the realm of the non-disprovable bull case,” Jonas said. “Autonomous driving and generative AI still remain, in our view, two very different technological disciplines. While the market may want to dream on the AI theme, we'd prepare to wake up to the sound of a blaring car horn.”

All that being said, Jonas noted Tesla is still a “must own” in the auto space as the industry evolves in what he says is one of the greatest industrial changes the country has seen in over a century. Specifically, Jonas cited Tesla’s supply chain prowess and its ability to de-risk that, unlike competitors, as well as its relative margin strength. And beyond recent charging deals, Jonas sees other “potential areas of collaboration” with battery supply, software, and autonomy to follow.

Tesla stock is trading slightly higher in midday trading.

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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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