Tesla Catches an Upgrade. It’s an AI Stock.

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Tesla

Artificial intelligence stocks are picking up steam on Wall Street.

Morgan Stanley analyst Adam Jonas upgraded the stock.

Tesla

(Ticket: TSLA) to buy from Hud on Sunday. The price target was a Wall Street high of $400 a share, up from $250. Tesla calls it his top choice.

The update is all about AI.

“The autonomous car has been described as the mother of all AI projects,” Jonas writes. “In its quest to solve the issue of autonomy, Tesla has developed an advanced computing architecture that pushes new boundaries in custom silicon and gives Tesla a disproportionate advantage in a $10 trillion total addressable market.”

Ten trillion is a big number. This is the annual revenue that could be generated from the sale of robotaxis when and if cars drive themselves. Tesla is investing billions in using AI computing to train its self-driving software to make robotaxis a reality, and Tesla calls its custom computing platform the Dojo.

“Investors have long debated whether Tesla is a car company or a technology company,” Jonas added. “We believe it is both.” Moreover, he sees software and service revenue as the biggest driver of potential value creation for the company.

But for now, it’s still a potential. Tesla generates sales from improved Autopilot and fully self-driving driver assistance systems, but cars don’t drive themselves yet. And software sales aren’t yet enough to move the needle on Tesla’s profit margins. In the second quarter, the operating profit margin was about 10%.

Toyota Motors

(TM) profit margin in the second quarter of 2023 reached 11 percent.

Tesla shares rose 6.2 percent to $263.86 in premarket trading Monday. Investors can expect a 3 to 5 percent performance for Tesla shares relative to the market on Monday. S&P 500 and Nasdaq Composite futures rose 0.4% and 0.7%, respectively.

With the update, more than 40% of analysts rate Tesla’s stock rate buy. The average buy-rate ratio for stocks in

S&P 500
It is about 55%. A year ago, 64% of analysts rated the stock Buy.

The average analyst price target is about $254 per share. Jonah is the new high water mark on the road. Previous high price targets were in the $350 per share range.

Coming into Monday’s trading, Tesla stock is down 18 percent over the past 12 months, while the S&P 500 and

Nasdaq Composite
8% and 12% respectively. Tesla’s significant price cuts to start in 2023 and rising interest rates have dampened investor interest in all auto stocks, including Tesla.

Write to Al Root at [email protected]