Cathie Wood Thinks This Stock Is the Biggest AI Play in the Market

RV_ · June 16, 2023

Excerpt:

"Key Points:

Cathie Wood believes that one company is the "most obvious beneficiary" of AI.
She thinks Tesla will be the leader in a market worth $8 trillion to $10 trillion by 2030.

However, there are reasons to question Wood's exuberance.

The Ark Invest CEO expects one stock to skyrocket more than 5x by 2027.

Could artificial intelligence (AI) present the biggest moneymaking opportunity in a generation? It just might.

We've already seen several AI stocks soar so far in 2023. Nvidia, for example, has skyrocketed more than 160% higher thanks to AI-fueled demand for its graphics processing units.

But is Nvidia the best AI pick right now? Not according to Ark Invest founder and CEO Cathie Wood. She thinks there's another stock that's the "biggest AI play" in the market.

"The most obvious beneficiary"

Wood firmly believes that Tesla (TSLA 1.81%) stands out as the top AI stock around. She stated at Fortune's Most Powerful Women Next Gen Summit in May that the electric vehicle maker is "the biggest AI play out there."

A couple of weeks ago, the Ark Invest leader tweeted about her company's bullish take on Tesla. Wood claimed that the company "is the most obvious beneficiary of the recent breakthroughs in AI."

She's definitely putting her money where her mouth is. Tesla ranks as the largest holding in three of Wood's funds: Ark Innovation ETF (ARKK -0.52%), Ark Autonomous Technology & Robotics ETF (ARKQ -0.79%), and Ark Next-Generation Internet ETF (ARKW 0.30%).

Tesla has been a big winner for Ark Invest, too. So far this year, the stock is up nearly 130%. The huge gains haven't deterred Wood from adding more to Ark's position. In April, Ark Innovation ETF and Ark Next-Generation Internet ETF scooped up more Tesla shares.

NASDAQ: TSLA

Tesla

Today's Change

(1.81%) $4.64

Current Price

$260.54

TSLA

Key Data Points

Market Cap

$826B

Day's Range

$257.21 - $263.60

52wk Range

$101.81 - $314.67

Volume

167,700,761

Avg Vol

134,532,695

Gross Margin

23.13%

Dividend Yield

N/A

Why Tesla?

Why does Wood view Tesla as the best AI stock? She's especially optimistic about the company's autonomous taxi (robotaxi) platform business.

Wood predicts that the robotaxi market will reach between $8 trillion and $10 trillion by 2030, or soon thereafter. Ark Invest expects the autonomous taxi business will make up roughly 44% of Tesla's revenue but two-thirds of its enterprise value as soon as 2027.

With such a massive growth opportunity, Wood and her team believe that Tesla's market cap could approach $8 trillion within the next four years. Even the bearish model projected by Ark Invest gives Tesla a market cap of over $4.4 trillion by 2027. That's more than 5.6 times the stock's current valuation.

Wood argues that Tesla is on track to be the biggest winner in robotaxis (and thus, in AI in general) because of its competitive advantage. She stated at the Fortune conference last month that Tesla has "more data than all the other auto companies and tech companies touching transportation combined."

https://www.fool.com/investing/2023/06/14/cathie-wood-thinks-this-stock-is-the-biggest-ai-pl/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article&yptr=yahoo

Edited June 16, 2023 by RV_

RV_ · June 16, 2023

Tesla Stock: Headed to $300?

Key Points

Wall Street is high on Tesla’s software opportunity, but its growing manufacturing capabilities are still underappreciated.

Wall Street is high on Tesla’s software opportunity, but its growing manufacturing capabilities are still underappreciated.
Tesla’s long-term goal of producing 20 million vehicles per year is directly tied to its ability to reduce costs and lower prices.

The stock has nearly doubled so far this year, but it could have more room to run over the next five years.

Shares of Tesla (TSLA 1.81%) are up 102% year to date, but analysts believe the popular EV stock hasn't topped out yet.

New Street Research analyst Pierre Ferragu sees the stock reaching $300. That is about 21% above the current share price. Piper Sandler sees the stock reaching $280 based on Tesla's software opportunity and what it can do for the company's profits over the next few years.

Software is, indeed, a big opportunity, since Tesla charges as much as $15,000 for its full self-driving car software. But its profit-earning ability runs deeper than software.

Long-term investors should pay attention to Tesla's relentless pursuit of reducing costs across the business. I believe this is still an underappreciated aspect of the company's culture that makes the stock worth buying right now.

Built for shareholder returns

Tesla has experienced exploding demand in recent years, but what may not get enough attention is the rapid increase in the company's profit margin.

TSLA Profit Margin data by YCharts

Over the last five years, Tesla's profit margin has risen from negative 20% to positive 13.7%. Revenue has more than tripled, but improving margins have driven earnings per share up an incredible 2,500%.

There are several ways Tesla accomplishes this, and several reasons why it should continue growing earnings and fueling a higher stock price over the long term.

Tesla designs everything in-house, which goes a long way to saving money on alternative products and materials. Tesla's goal is 20 million electric vehicles per year. It's a mighty target next to the company's 1.3 million vehicles delivered in 2022. By reducing costs and improving efficiency, Tesla can overcome production constraints and lower prices to grow demand.

One way it's reducing costs is building smaller factories for production of the new powertrain generation. Tesla is also designing its own transistor packages, eliminating the use of rare earth materials in its EVs, and reducing its reliance on silicon carbide, an expensive semiconductor.

Tesla is gaining manufacturing expertise that is giving it a competitive advantage. The company is even building its superchargers in house, then loading them on a truck and using a crane to install them at the destination site. By pre-building the chargers, the company saves money on deployment costs. Just one more way Tesla keeps profits on an upward trajectory.

In fact, Tesla's lead powertrain engineer Colin Campbell said the company's improving efficiency will be "transformative for the adoption of EVs."

Don't underestimate Tesla

When you are doing everything in-house, you are also raising the risk that hiccups in production could cause delays and uncertainty in sales. Tesla has experienced these delays before, as with the initial ramp of the Model X and Model 3. The upshot, however, is that Tesla can better maintain quality standards over the car ownership experience, which puts it in good company with Apple.

Another thing to keep in mind is that the stock is also already pricing in a lot of growth. At a forward price-to-earnings ratio of 59, Tesla isn't cheap, but it likely never will be. The expensive valuation will lead to occasional dips in the stock when things don't go exactly like Wall Street expects. But volatility will have to to be the price investors pay for the long-term ride.

Despite the inevitable bumps in the road, patient shareholders should be rewarded. The stock's price-to-sales multiple is at multi-year lows, and that signals the market is not giving Tesla full credit for its ability to increase margins over the long term. This should set up better returns as the company continues to reduce costs and put more EVs on the road."

https://www.fool.com/investing/2023/06/13/tesla-stock-headed-to-300/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article&yptr=yahoo