ARK Invest’s Cathie Wood is an AI believer.
Nvidia
is just too expensive. Her best AI idea:
Tesla.
Nvidia (ticker: NVDA) has had an incredible recent run. Shares are up 26% over the past five days, adding roughly $200 billion in market capitalization. The artificial-intelligence explosion did it. Nvidia, on Wednesday evening, told investors it expected about $11 billion in fiscal second-quarter sales thanks to demand for AI-related computing. Wall Street was projecting closer to $7 billion in Q2 sales.
Coming into Tuesday trading, Wood’s
ARK Innovation
exchange-traded fund (ARKK), was up less than 1% over the prior five days, having missed out on the Nvidia rally. The Nasdaq Composite added about 2.5% over the same span.
“Since 2014, ARK has believed that Nvidia saw the AI future before most other chip companies, and now we believe it will continue to power the AI age,” tweeted Wood on Monday. “At 25 times expected revenue for this year, however, Nvidia is priced ahead of the curve.”
Nvidia stock was up 5.8%, at $ 412.21, in midday trading Tuesday. Tesla shares were up 3.9%, at $200.64. The ARK Innovation ETF was up 1.8%. The S&P 500 and Nasdaq Composite were up 0.2% and 0.7%, respectively.
Nvidia’s market capitalization is pushing $1 trillion, at about $963 billion. The company is expected to generate about $41 billion in fiscal-year 2024 sales. (Nvidia’s fiscal year ends in January.) That’s about 23.5 times, a little lower than the 25 times referenced.
Wood’s preferred AI play is Tesla (TSLA). “Tesla, at six times revenues, is the most obvious beneficiary of the recent breakthroughs in AI, as it aims for an $8 trillion to $10 trillion revenue [total addressable market] in autonomous mobility by 2030,” she wrote in another tweet. “But based on our research for the last five to six years, ARK sees dozens of AI winners.”
Tesla plays in AI two ways. First is in the autonomous mobility area referenced by Wood. Tesla CEO Elon Musk believes his company’s full self-driving, or FSD, driver-assistance software will eventually get good enough to turn all Tesla vehicles capable of running the software into “robotaxis.” Tesla uses AI to train and teach its software to drive. “I think it will be the single biggest asset-value increase in history,” said Musk at Tesla’s 2023 annual meeting of shareholders on May 16.
Tesla has another moonshot AI opportunity: robots. Tesla is building an AI-powered humanoid labor-saving robot it calls Optimus. “My prediction is that Tesla’s long-term value will be, a majority of long-term value, will be Optimus,” Musk said at the shareholder meeting. “And that prediction I am very confident of.”
All the AI technologies, whether from Nvidia or Tesla, are targeted at improving worker productivity. ChatGPT-type AI can automate tasks done by humans. Self-driving cars can give commuting workers an extra hour of time a day. And robots doing menial tasks are a direct supplement to human labor.
The opportunity is large. ARK estimates the global wages pool is $30 trillion a year.
To be sure, AI has the potential to cause worker disruption around the world. But with higher productivity and more goods, the idea is the economy will create other jobs and other ways for people to spend their time.
Tesla trades at about six times sales, but profits always matter more. Nvidia has operating profit margins of about 50%. Tesla is expected to produce operating profit margins of about 11% in 2023.
Based on operating profit, Nvidia looks a little cheaper. Nvidia is trading for about 47 times calendar-year 2023 operating profit. Tesla is trading for about 52 times.
Write to Al Root at [email protected]
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