Tesla (TSLA -1.92%) has long held the attention of Cathie Wood and her team at Ark Invest, becoming its largest position. Many likely assume that its lead in the electric vehicle (EV) market or its battery advancements may drive that interest.
Although those factors play into Ark's decision to hold the stock, Tesla has also driven its interest with artificial intelligence (AI) advancements. Despite Elon Musk's calls for a temporary moratorium on AI development, Tesla has become a major player in the AI field. That edge could make it one of the world's largest companies. Here's how.
Tesla and AI
Admittedly, almost every tech company and many non-tech companies have promoted AI capabilities, and Tesla is no exception. Within the AI field, it has developed AI applications for performing repetitive tasks and modeling the real world.
However, the AI stock's most meaningful AI-related breakthrough does not involve routine activities. In a recent interview with Fox Business, Wood called Tesla "one of the most profound AI companies out there." She labeled it as a technology company, arguing the major AI-driven opportunity for Tesla is autonomous taxi platforms.
To this end, Tesla has developed chips, neural networks, code, and evaluation infrastructure to make self-driving cars a reality. For this reason, Wood described these autonomous taxi platforms as "the biggest opportunity" in AI over the next five to 10 years.
Why AI is such an opportunity for Tesla
Specifically, Wood believes these platforms will change the game for Tesla stock. As conditions stand now, Tesla claimed a 19% gross margin in the first quarter of 2023 and a gross margin averaging 26% in 2022. That comes mostly from cars, and Wood believes those margins will rise.
Nonetheless, the autonomous taxi platform is a sofware-as-a-service (SaaS) platform. Wood believes that Tesla will lead that industry while earning 80% gross margin in that part of the business. Such growth should lead to increased profits, taking the stock much higher over time.
Moreover, if Tesla achieved this, it could become one of the top five largest companies. As conditions stand now, Tesla's market cap already exceeds $570 billion, making it the ninth-largest company in terms of market cap. In today's market, its market cap would have to exceed $1.2 trillion to become a top-five company.
However, if autonomous taxis achieve 80% gross margin, Tesla will probably experience a huge increase in profitability. Wood's team predicts that Tesla will rise to an expected price of $2,000 per share in 2027. If she is right, Tesla will reach a market cap of more than $6 trillion, a level that would make it the world's largest company in today's market.
Tesla's prospects for reaching the top five
Wood and her team at Ark Invest make a compelling case for Tesla to become the world's largest company (or at least one of the largest) based on AI. Admittedly, autonomous driving still has to prove itself as a viable concept. Should it fail, Wood's estimated $2,000-per-share price target could be out of reach.
Nonetheless, Tesla continues to seek AI-driven breakthroughs on multiple fronts, some of which could fundamentally change the company for the better. If Tesla's autonomous taxi platform succeeds in the marketplace, expect the stock and the market cap to surge to record-breaking levels.
