Artificial intelligence (AI) was certainly a popular trend during 2023. Since the start of the year through mid-December, the tech-heavy Nasdaq Composite Index has had a total return of more than 40% -- handily beating the S&P 500.

While the advent of generative AI models developed by Microsoft, Alphabet, and Amazon have taken the world by storm, my sights are captured by another AI disruptor. Ark Invest CEO Cathie Wood recently referred to electric vehicle (EV) pioneer Tesla (TSLA 1.50%) as the biggest AI play in the world. I think she might be right.

Although demand for Tesla's vehicles is strong, I see other reasons to own the stock. Let's explore some of Tesla's AI use cases and assess how these innovations could help the company evolve beyond being just a car manufacturer.

1. Robotics and Tesla Optimus

Like other car companies, Tesla produces its vehicles along assembly lines in gigantic factories all over the world. However, the company's eccentric CEO Elon Musk has a big vision of how he'd like to transform these factories in the future.

On several occasions, Musk has stated that his goal for Tesla is to produce 20 million cars per year by 2030. In order to achieve this production milestone, Tesla is going to need some help. While you might think this translates to ratcheted-up hiring, think again.

Tesla has invested significantly into a secret artificial intelligence project dubbed Optimus, giving investors sparse details on earnings calls over the years. Well, just a few days ago, Musk took to social media platform X (formerly known as Twitter) to provide a glimpse into how Optimus is progressing.

Investors can see that Optimus is a humanoid robot capable of walking upright and handling delicate objects. The long-term application of these robots is that they will be able to augment workforce output in Tesla's factories. Unlike a human, Optimus can theoretically work around the clock, which can meaningfully impact production at scale. While this may seem a little far-fetched, consider Musk's playbook here.

E-commerce giants Amazon and Alibaba both leverage robotics in warehouse operations. While humans are not fully replaced, robotics can help with manufacturing as well as fulfillment efforts in factories. These efficiencies can lead to massive cost savings over time as it pertains to labor efforts.

For Tesla, I see two obvious tailwinds from Optimus. The first is that as the robots become more sophisticated, the company can begin integrating Optimus bots throughout its global fleet to help bolster vehicle production. By producing more cars at a faster rate, Tesla can further separate itself from the competition by meeting demand backlog at an unprecedented pace.

The more subtle opportunity is that should this prove successful, Tesla can sell these robots to other companies to augment labor productivity -- potentially disrupting a $154 billion market, according to research published by Goldman Sachs. In essence, the prospects of robotics represent a case for Tesla to move beyond cars as the company seeks additional revenue streams.

A human shaking hands with a robot.

Image source: Getty Images

2. Autonomous driving and Tesla Dojo

The second AI opportunity for Tesla is autonomous driving. There are a number of companies participating in the self-driving car race. Notably, ride-hailing company Uber is working closely with Alphabet's autonomous driving subsidiary Waymo.

Autonomous driving is considered to be potentially safer than human-operated vehicles, making the technology of interest to the likes of Tesla and other car companies. Moreover, as it relates to ride-hailing businesses or delivery services such as DoorDash or Instacart, robotaxi fleets represent enormous cost savings, as they eliminate the need for drivers. In fact, Wood estimates that robotaxis could generate $9 trillion in sales by 2030.

Like its lead in EV adoption, Tesla is thought to have the most sophisticated autonomous driving technology on the planet. The reason is that Tesla's vehicles are collecting more data through cameras and sensors than any other car company.

The data that Tesla's cars take in include constantly monitoring roads, weather conditions, traffic levels, and more. Tesla then feeds this data into a supercomputer called Dojo. The basic explanation is that as Tesla's cars collect more data, the Dojo software becomes more intelligent -- a process called machine learning.

One of Tesla's longest-tenured investors is a mutual fund manager named Ron Baron. During a recent conference, Baron proclaimed that Tesla's self-driving software could reach $100 billion in revenue per year, making it a trillion-dollar business in itself.

So is Tesla a buy for the AI?

Although Tesla is often affiliated with EVs, it's clear that the company is investing in more complicated technology. While the commercialization of robotics and self-driving vehicles is still years away, the current preview of each is quite stunning.

For these reasons, I think Tesla is underappreciated when it comes to AI stocks and could be overlooked. Long-term investors should seriously consider Tesla as part of their broader AI portfolio allocation. Given the institutional support and the size of the addressable markets for robotics and autonomous driving, Tesla looks well-positioned to replicate its leading position in EVs and dominate these emerging AI applications.