• Sandler increased its price target on Tesla from $939 to a street-high $2,322, implying potential upside of 55% from Monday's close.
  • The firm employed a 20-year discounted cash flow model to generate the price target, and credited Tesla with first-mover advantage and software potential as reasons to stay long the stock.
  • In response to the note, Tesla CEO Elon Musk tweeted, "Wow."
  • Tesla has seen a surge in trading activity as investors speculate that the electric car company may be on the verge of being eligible for inclusion into the S&P 500 index.
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Tesla's gravity defying rally so far in 2020 is set to continue, according to a note from Piper Sandler published on Monday.

The firm more than doubled its previous price target from $939 to a Wall Street-high $2,322, implying 55% upside from Monday's close.

Sandler employed a 20-year discounted cash flow valuation model to generate its price objective, and chalked up the increase in its price target to "reflect faster-than-expected share gains," according to the note. The firm also pointed to Tesla's software opportunity as a reason to stay long the stock.

So should investors ring the register and take profits in Tesla after it surged as much as 328% year-to-date? According to Sandler, "resoundingly, we think the answer is NO."

Read more : UBS says buy these 18 diamond-in-the-rough stocks that will offer massive gains over multiple years, even as their underlying industries suffer "It's hard to see how competitors can catch up," Sandler said, adding that Tesla's own building capacity is its biggest constraint to further share gains. The firm said that Tesla might still be able to deliver upward of 500,000 cars in 2020, which would be "impressive" given temporary factory closures caused by the COVID-19 pandemic. And Tesla could deliver nearly 4 million cars in 2025, capturing almost 10% of market share in the US, Piper Sandler said. More important to its price target increase, Piper said it believes Tesla's software, particularly the full self-driving add-on, could allow Tesla to sell cars at "or even below cost, while still achieving higher operating margins" by the 2030s. Risks to Piper's bull thesis include production delays, failure to meet customer expectations, product defects and recalls, supply chain disruptions, and the slow adoption of electric cars. In response to the note, Elon Musk tweeted on Monday night, "Wow." Read more : A Wall Street investment chief dispels the notion that surging stocks are disconnected from the economy and lays out 3 reasons why the market will continue to climb over the next year If shares of Tesla continue to remain elevated, Musk could receive a $2.4 billion payout. Shares of Tesla have surged on stronger-than-expected second quarter delivery data and speculation that the company may be eligible for inclusion into the S&P 500 index once it reports earnings later this month. Tesla traded down as much as 4% to $1,431 in Tuesday trades. Markets Insider NOW WATCH: Pathologists debunk 13 coronavirus myths See Also: 'Blank check' companies have seen a surge in popularity this year. Here are 6 high-profile SPACs to watch in 2020. Elon Musk is now officially richer than Warren Buffett. Here's why that doesn't tell the full story of the billionaires' wealth. The most accurate Wall Street analyst covering financials pinpoints 5 stocks to buy ahead of a 'messy' earnings season