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Shares of Tesla (TSLA) climbed to a 7-1/2 month high Wednesday and are up +82% this year, rebounding sharply from last year’s -65% plunge. Tesla is benefitting from the artificial intelligence (AI) frenzy that is pushing stocks with AI relevance higher. Tesla’s valuation has exploded on hopes for its ambitious AI project of cars that can drive themselves.
With this year’s sharp rally. Tesla’s valuation has soared to about 61 times forward earnings, compared with the mid-to-high single-digit multiples of General Motors (GM) and Ford Motor (F). Even AI stalwart Nvidia (NVDA) trades at only 42 times forward earnings. Tesla CEO Musk said back in June 2022 that his company’s value was almost fully dependent on cracking the code for self-driving cars, and “that really is the difference between Tesla being worth a lot of money and being worth basically zero.”
Tesla already offers a driver-assistance technology called Full Self-Driving, although a genuinely self-driving car remains elusive. Other companies, like Alphabet (GOOGL), Ford, and General Motors, have also struggled to develop self-driving cars. Cathie Wood, CEO of ARK Investment Management, said “Autonomous taxi platforms globally will deliver $8 trillion to $10 trillion in revenue by 2030 from almost zero right now.” She said her estimate of Tesla’s share price reaching $2,000 by 2027 is dependent on the electric vehicle (EV) maker playing a big role in that future.
Some analysts believe the AI opportunities of Tesla warrant its elevated share price and valuation. Zacks Investment Management said investors do not yet fully appreciate Tesla’s AI opportunities. They believe most of the company’s present valuation only reflects its success in the consumer EV markets, where it is the dominant player, and ignore other opportunities, including AI. Overall, “considering the current upswing in AI-related names, we believe Tesla should enjoy participation in the excitement.”
Not all are believers in Tesla’s AI prospects. DataTrek Research said, “Tesla’s AI is also a valid form of AI. But as we have found, it is much harder to drive a car from 57th Street to Wall Street in Manhattan than it is to have generative AU write you a novel.” Also, Morgan Stanley said that despite the hype, Tesla remains an auto company, and the stock’s direction will be dominated by the supply and demand of electric cars over the next 12 months. In addition, SPEAR Invest said, “We would caution investors that are investing in Tesla for AI as the jury is still out on Tesla’s positioning. We believe that generative AI is disrupting Tesla’s first mover advantage in autonomous driving.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
