Tesla (TSLA +0.53%) published its second-quarter earnings results and hosted a conference call after the market closed on Wednesday. During the call, CEO Elon Musk detailed the company's plans to ramp up investment in its Dojo supercomputer system.
Musk stated that Tesla will be investing well over $1 billion over the next year to enhance Dojo's capabilities. Along with declining gross margins for the company's electric vehicles (EVs) following recent price cuts, news of the substantial investment in the computing platform has actually helped prompt a post-earnings pullback for the company's stock.
With Tesla betting big on next-generation computing capabilities, is it the best EV stock to buy right now?
Image source: Tesla.
Tesla continues to bet big on future tech
Autonomous driving software presents a potentially massive growth opportunity for Tesla. While the company already offers self-driving tech through its vehicles, there's still a lot of progress that has to be made before the software will be capable of functioning without the need for inputs from drivers. Further development of the Dojo supercomputer system should help the company move closer toward fully autonomous driving capabilities.
As noted by Musk in the conference call, Tesla has a huge amount of video that it can use to train AI-powered autonomous driving software. Tesla vehicles record and transmit video data back to the company, giving it a massive library of information that can be used to improve self-driving technologies.
By continuing to invest big in Dojo and other advanced computing technologies, the EV leader could pave the way for massive new opportunities. Notably, Tesla CFO Zachary Kirkhorn clarified that the spending on Dojo will be spread across research and development and capital expenditures, and stated the expense was already factored into the previous three-year expense outlook.
If the company rolls out self-driving taxi services or finds willing buyers to license its software, its possible that autonomous vehicle technologies will power a huge new growth phase for the company. For example, Cathie Wood's Ark Invest firm estimates that autonomous ride-hailing platforms will generate more than $9 trillion in annual sales by 2030.
NYSE: GM
Key Data Points
Is Tesla stock the best EV buy?
With a market capitalization of roughly $857 billion, Tesla is valued at approximately 77 times this year's expected earnings and 8.5 times expected sales.
TSLA PS Ratio (Forward) data by YCharts
By comparison, General Motors and Ford are also ramping up initiatives in the EV space and generate more overall revenue and net income than Tesla. They also trade at significantly lower growth-dependent valuations.
GM PS Ratio (Forward) data by YCharts
Ford currently has a market capitalization of roughly $56.2 billion, while GM has a market cap of $54.4 billion. Both companies are valued at roughly a third of this year's expected sales and trade at single-digit P/E values. So despite already being squarely in mega-cap territory and enjoying a leading position in the EV market, Tesla remains a high-risk, high-reward stock.
It's possible that continued growth in the core auto market and expansion in new categories including autonomous vehicle and battery technologies will open the door for the company to see explosive valuation gains from current levels. The extent to which Tesla will succeed on these fronts and translate victories into earnings remains to be seen, and the company's current valuation also opens the door for significant downside if big wins outside of the core EV business don't materialize.
To summarize, long-term investors shouldn't be worried about Tesla's plans to invest heavily in its Dojo supercomputing system. While big investments in next-generation computational abilities will have some adverse impact on the company's near-term earnings picture, this is exactly the kind of spending that buy-and-hold investors should want the EV leader to be making.
