Tesla surged to its highest share price in over a month on Monday, thanks to an upgrade from Morgan Stanley.
The upgrade highlighted a non-vehicle revenue source that could potentially support a market capitalization of over $1 trillion for the company led by Elon Musk.
- In the key facts: Tesla’s stock saw a roughly 7% increase in morning trading, reaching approximately $265, marking its highest intraday level since August 1st. This surge followed an upgrade by Morgan Stanley analysts, led by Adam Jonas, who changed their rating for the electric vehicle stock from “hold” to “buy” and raised their price target from $250 to $400.
- Morgan Stanley’s upgrade was primarily driven by their optimism about Tesla’s Dojo supercomputer. Adam Jonas, the analyst behind the upgrade, estimated that Dojo could contribute up to $500 billion in enterprise value to Tesla. Currently, Tesla holds a market capitalization of around $800 billion.
- Dojo, Tesla’s artificial intelligence technology network, is primarily designed for training its self-driving vehicles using video data. Jonas believes that Dojo has the potential to enable Tesla to expand its offerings beyond traditional vehicle sales and become a significant player in the highly profitable software-as-a-service market.
- Jonas and his team’s price target stands out as the highest among all analysts tracked by FactSet. They foresee Tesla reaching its highest split-adjusted level since January 2022. This indicates a strong bullish outlook for the company’s stock.
- In a significant statement, Jonas stated, “Dojo may have the capability to be the core of the ‘Muskonomy.'” He believes that this machine learning technology could potentially play a central role not only in Tesla but also in Elon Musk’s other ventures, including his social media company, X, and aerospace and communications firm, SpaceX.
In key background information, Elon Musk announced in July that Tesla would invest “well over” $1 billion in developing Dojo over the next year. Deutsche Bank analysts, led by Emmanuel Rosner, noted that with Dojo, Tesla aims to have a supercomputer tailored specifically for its image and video processing requirements.
Tesla’s stock has experienced significant growth in 2023, with a year-to-date increase of over 100%, making it one of the top performers on the S&P 500. However, it’s important to note that Tesla’s stock is still down by approximately 35% from its peak during the pandemic.
Adam Jonas appears to have had a change of perspective regarding Tesla’s AI prospects. In June, he cautioned investors that “autonomous driving and generative AI still remain, in our view, two very different technological disciplines.”
The broader market has seen AI-related stocks leading in gains this year, with Nvidia standing out with over a 200% increase, pushing its market capitalization to over $1 trillion.
Barclays analysts, led by Dan Levy, are critical of Tesla’s Dojo, stating that while it is the “primary place where Tesla stands to benefit from the recent advances in AI,” generating revenue by offering this service to external companies is likely to be a “considerably long-dated opportunity.” This viewpoint suggests that the full potential of Dojo as a revenue-generating AI service for Tesla may take a significant amount of time to materialize.
Elon Musk, who is Tesla’s largest individual shareholder, is estimated to be worth $261 billion according to Forbes’ calculations. He holds the title of the richest person in the world, surpassing the next-richest individual, LVMH chairman Bernard Arnault, by over $60 billion in wealth.