Tesla
as an artificial intelligence stock is picking up steam on Wall Street.
Morgan Stanley analyst Adam Jonas upgraded shares of
Tesla
(ticker: TSLA) to Buy from Hold, Sunday. His price target went to a Street high of $400 a share, up from $250 a share. He calls Tesla his top pick.
The upgrade is all about AI.
“The autonomous car has been described as the mother of all AI projects,” wrote Jonas. “In its quest to solve for autonomy, Tesla has developed an advanced supercomputing architecture that pushes new boundaries in custom silicon and may put Tesla at an asymmetric advantage in a $10 trillion total addressable market.”
Ten trillion is a huge number. It’s the potential annual revenue from robotaxi sales when, and if, cars truly drive themselves. Tesla is investing billions using AI computing to train its self-driving software to make robotaxis a reality and Tesla calls its custom computing platform Dojo.
“Investors have long debated whether Tesla is an auto company or a tech company,” added Jonas. “We believe it’s both.” What’s more, he sees software and services revenue being the biggest driver of potential value creation for the company.
For now, it’s still potential though. Tesla generates sales from its Enhanced Autopilot and Full Self Driving driver assistance systems, but cars don’t drive themselves yet. And the software sales aren’t large enough yet to move the needle on Tesla’s profit margins. Operating profit margin in the second quarter came in at about 10%.
Toyota Motor’s
(TM) operating profit margin in the second quarter of 2023 came in at about 11%.
Tesla stock wasn’t trading Sunday night when the report was published. Investors can likely expect 3 to 5 percentage points of outperformance for Tesla shares relative to the market on Monday.
With the upgrade, just more than 40% of analysts covering Tesla stock rate shares Buy. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%. A year ago, 64% of analysts covering the stock rated shares Buy.
The average analyst price target is about $254 a share. Jonas is the new high water mark on the Street. The prior top price targets were in the range of $350 a share.
Coming into Monday trading, Tesla stock is down about 18% over the past 12 months, while the S&P 500 and
Nasdaq Composite
are up 8% and 12%, respectively. Tesla’s significant price cuts to start 2023, along with rising interest rates have sapped some investor enthusiasm for all auto stocks, including Tesla.
Write to Al Root at [email protected]
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