Elon Musk is the CEO of global electric vehicle powerhouse Tesla (TSLA -3.14%). Over the years, the company has received an incredible amount of support from investors, who have routinely paid a premium price for its shares.

But perhaps no single investor is as vocally optimistic about Tesla's potential as Cathie Wood, who runs Ark Investment Management. In fact, Tesla is the largest holding in the ARK Innovation ETF (ARKK -1.96%) and the firm currently has a $1,533 price target on Tesla stock. That's the highest Tesla target price on Wall Street and represents a 696% upside from where the stock trades today.

Cathie Wood rarely disagrees with Elon Musk's vision for the company, but an ongoing debate about the potential risks of advanced artificial intelligence (AI) could divide them. Musk has been actively voicing his concerns about rushing into the new technology too fast. Meanwhile, Ark Invest just released a set of blockbuster financial projections for the AI industry that rely upon it moving full steam ahead.

An artificial intelligence, deep-learning concept overlaid on a person's side profile.

Image source: Getty Images.

Musk calls for a pause on AI development

Could artificial intelligence lead to a rise-of-the-machines-style existential threat to humanity? Nobody really knows, and that's kind of the problem. 

In March, the Future of Life Institute issued a public letter calling for a six-month pause to the development of advanced AI models. This was in large part spurred by the impressive abilities of GPT-4, the latest language model developed by OpenAI, whose ChatGPT has taken the internet by storm in recent months. 

But let's back up for a second, because it's important to point out two things. First, Elon Musk is a co-founder of OpenAI, and he intended for it to be an open source, non-profit organization. He left in 2018 to avoid future conflicts of interest with Tesla's own AI initiatives, and he has been very critical of OpenAI's "maximum" profit status today -- it just completed a major investment deal with Microsoft (MSFT -1.33%) that could be worth as much as $10 billion. 

Second, Musk is a financial donor to the Future of Life Institute, which has set out to research the potential risks humanity faces from artificial intelligence. 

Now, back to the letter. Musk was among the first signatories, and since its release, over 9,000 people have put their names to it, including AI researchers, academics, and tech heavyweights. The group focuses on GPT-4 because it's the first AI model with the ability to complete complex tasks with the same proficiency as humans -- or better. 

GPT-4 recognizes both text and images -- in a demonstration, the bot was shown a drawing, asked to code a website that looks exactly like it, and did just that. The model also achieved human-level grades in the Bar exam, the Scholastic Assessment Test (SAT), and the Graduate Record Examinations (GRE). These are still early days for the bot; that it can already succeed at such tasks means it's not hard to envision a near future where AI is outsmarting humans.

Ark has enormous financial hopes for AI

The proposed six-month pause on advanced AI development is designed to give technologists and policymakers time to enact guidelines that prevent humans from losing control of the technology. Representatives of Ark Invest -- including Cathie Wood -- have not yet publicly expressed support for the Future of Life letter.

But the firm's long-term financial projections suggest AI is going to become so easily accessible that the development of rogue and dangerous models could be inevitable. For example, Ark says the cost to train GPT-3 level generative AI (the GPT-4 predecessor) will fall by 70% every single year between now and 2030. In dollar terms, that cost will fall from $450,000 in 2022 to just $30 by the end of this decade. 

That steep price decline would place advanced AI at the fingertips of just about every business on Earth. In fact, Nvidia (NVDA -6.62%) is about to give the world access to its powerful AI supercomputer through cloud providers like Microsoft Azure, allowing them to train advanced models themselves with practically no oversight.

Ark thinks AI will add $200 trillion to global economic output by 2030 and that the companies developing the technology could share in $14 trillion in revenue. If that happens, AI would create more value than any industry the world has ever seen. With such a big pot of gold at the end of the rainbow, it's going to be nearly impossible to disincentivize companies from entering an AI arms race, hence the call from Musk and others to develop a more stringent set of rules around the technology.

AI will be critically important to Tesla in the long term

Earlier, I mentioned Ark Invest has a Street-high price target of $1,533 on Tesla stock. The firm thinks Tesla will get there by 2026. Perhaps unsurprisingly, Ark sees artificial intelligence as a critical ingredient in that journey.

For example, Ark believes that in 2026, 34% of Tesla's revenue will come from robotaxis. Those vehicles won't require any human input because they'll be powered by fully autonomous self-driving software -- which, of course, relies on AI. 

If Tesla stock does reach $1,533, the company will be valued at $5.3 trillion. Ark estimates 62% of that value will be attributed to the robotaxi business, likely because it will be one of the fastest growing pieces of Tesla overall. As a result, eliminating AI from the company could erase $3.2 trillion in market value.

Tesla is also working on a humanoid robot called Optimus, which, based on the company's early projections, could be a multibillion-dollar opportunity after 2027. Without AI-powered software, though, that product ceases to exist.

I am in no way saying a six-month pause on advanced AI development will derail Tesla's long-term plans. However, if the industry can't agree on a set of guidelines, global policymakers might enforce a far stricter set of laws later down the road -- especially if the Future of Life Institute's concerns about safety come to fruition. That would have the potential to impact Tesla's plans, and based on Ark's estimates, there is a lot of value at stake.