Tesla, the electric vehicle pioneer, has garnered an intriguing Wall Street upgrade centered on its prominence in artificial intelligence (AI).
Morgan Stanley analyst Adam Jonas made waves on Sunday by boosting Tesla’s stock (TSLA) from a Hold to a Buy rating.
He also raised the price target substantially, setting it at a Wall Street high of $400 per share, up from the previous $250 per share target. Jonas now labels Tesla as his top pick.
The crux of this upgrade hinges on Tesla’s extensive involvement in AI. Jonas emphasizes that “the autonomous car has been described as the mother of all AI projects.”
In its pursuit of autonomous driving capabilities, Tesla has engineered an advanced supercomputing architecture that redefines the boundaries of custom silicon.
This development could position Tesla with a significant advantage in a potentially colossal $10 trillion total addressable market.
While the figure is staggering, it represents the potential annual revenue from robotaxi sales, a concept contingent on cars truly achieving self-driving capabilities.
Tesla is channeling substantial investments into AI computing to train its autonomous driving software, a system referred to as Dojo.
The rationale behind this lies in Jonas’s assertion that Tesla is not solely an automobile manufacturer but a technology company as well.
Moreover, he believes that the software and services sector will play a pivotal role in Tesla’s value creation, despite its current status as a largely untapped potential.
As of now, these developments remain in the realm of potential. Tesla currently generates revenue through its Enhanced Autopilot and Full Self-Driving driver assistance systems.
However, vehicles have not yet achieved full autonomous driving status, and the software sales are not significant enough to make a substantial impact on Tesla’s profit margins.
In the second quarter, Tesla reported an operating profit margin of around 10%, slightly trailing Toyota Motor’s (TM) margin of roughly 11%.
Tesla’s stock surged by 5.7% in premarket trading on Monday, reaching $262.65. This upgrade could translate to an anticipated 3 to 5 percentage point outperformance for Tesla shares relative to the market on Monday.
With this upgrade, slightly more than 40% of analysts covering Tesla now rate the stock as a Buy. This figure is below the S&P 500 average Buy-rating ratio, which stands at around 55%.
In comparison, a year ago, approximately 64% of analysts covering Tesla shares had a Buy rating.
The average analyst price target is approximately $254 per share, with Jonas setting the new high-water mark on Wall Street. Previously, the top price targets were within the $350 per share range.
In the year leading up to Monday’s trading, Tesla’s stock has experienced an 18% decline. In contrast, the S&P 500 and Nasdaq Composite have risen by 8% and 12%, respectively.
Tesla’s substantial price cuts at the start of 2023, coupled with rising interest rates, have dampened investor enthusiasm for automotive stocks, including Tesla.
(Source: Barron’s)
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