What happened
A closely watched Wall Street analyst is bullish about Tesla's (TSLA 3.25%) supercomputing effort, predicting it could add upward of $500 billion to the company's enterprise value. Investors are taking note, sending Tesla shares up more than 7% as of 11:08 E.T. on Monday morning.
So what
Tesla is best known for its electric vehicles, but the company has long dabbled in other areas as well. Morgan Stanley analyst Adam Jonas is focusing in on Tesla's Dojo supercomputer operation, upgrading the stock to overweight from equal weight and boosting his price target to $400 from $250 on the potential for that unit.
Jonas believes the same forces that have pushed Amazon's cloud business to account for 70% of earnings can work for Tesla, "opening up new addressable markets that extend well beyond selling vehicles at a fixed price."
Tesla's Dojo is focused primarily on internal efforts right now, including the company's work to advance autonomous driving. But Jonas sees potential for the computing power to be sold to other industries as well.
"If Dojo can help make cars 'see' and 'react,' what other markets could open up?" the analyst wrote. "Think of any device at the edge with a camera that makes real-time decisions based on its visual field."
Morgan Stanley estimates Tesla's network services business could generate upward of $335 billion in sales by 2040, accounting for more than half of the company's core earnings by that time.
NASDAQ: TSLA
Key Data Points
Now what
The potential for Dojo is exciting, but investors should note that these predictions are based on just that: potential. There is a lot of work to be done before Dojo is doing anything close to what Jonas has envisioned.
As the analyst notes, "It is difficult to explicitly validate the many claims Tesla has made about Dojo's cost and performance." The company has notoriously overpromised in the past, with CEO Elon Musk predicting autonomous driving is right around the corner for nearly a decade.
It is possible Dojo becomes the powerhouse Jonas believes it can be. It is also possible the tech never delivers on the promise. Investors interested in buying in on this hope should note that Tesla today trades at almost 60 times predicted future earnings, significantly higher than other auto companies. Arguably a lot of that future growth from supercomputing is already priced into the shares.
