One of the most outspoken investors on Wall Street is Ark Invest CEO Cathie Wood. Wood is known to take large positions in emerging technology businesses that she and her team believe have massive upside potential. However, like any other money manager, Wood faces her share of backlash and skepticism.
I'll concede that some of Wood's high-conviction opportunities look far-fetched to me. But to be fair, one thing that Wood does that many of her peers do not is that she publicly releases her research. So while you may not agree with her, at least she backs up her forecasts by making them public.
Wood's largest position across all of her exchange-traded funds (ETFs) is Tesla (TSLA +3.34%). With the stock at $170 per share as of market close on April 25, Wood believes it could reach $2,000 by 2027 -- implying roughly 1,068% upside from current trading levels.
Let's dive into Wood's report and assess Tesla's long-run roadmap. While $2,000 per share may appear a stretch, I'd encourage investors to keep an open mind. There's a lot to unpack, and buying Tesla stock now could end up being an incredibly lucrative move.
NASDAQ: TSLA
Key Data Points
Is Tesla just a car company?
One of the biggest debates surrounding Tesla is whether it is just an automobile manufacturer, or if it is far more prolific. Technically, Tesla is more than a car business because the company also offers energy storage products that are separate from the core electric vehicle (EV) operation.
However, Tesla bulls would contest that the company is more advanced than its automotive peers. Namely, the long-term optimism surrounding Tesla is that the company is disrupting artificial intelligence (AI) in many different ways.
This is what Cathie Wood sees, and Tesla's CEO Elon Musk is backing her up. During the company's first-quarter earnings call, Musk stated, "But I think Cathie Wood said it best. Like really, we should be thought of as an AI or robotics company." Let's explore what that means.
Image source: Getty Images.
Artificial intelligence (AI) is the catalyst
There are two big ways that Tesla is investing in AI. First, the company is well-positioned in autonomous driving technology. While General Motors and Alphabet are both competing in the self-driving car space, Tesla is considered to be the leader. This is because Tesla has collected more driver data than any other competing autonomous car platform.
The opportunity that Wood and Musk both ultimately see as the pinnacle for Tesla's self-driving tech is what the company calls Robotaxi. The notion of Robotaxi is particularly lucrative because Tesla stands to benefit in several ways.
For instance, not only would it generate revenue from additional car sales, but the self-driving vehicle software represents a recurring source of revenue. This is a subtle yet massive leg up for Tesla, as software carries high margins and could unlock a new phase of both revenue and profit growth for Tesla.
Additionally, if Tesla is the first car company to commercialize autonomous driving at scale, there is a good possibility that competing automakers will look to license Tesla's tech. In fact, during first-quarter earnings, Musk hinted that Tesla is "in conversations with one major automaker regarding licensing [full self-driving] FSD."
Although widespread adoption of self-driving cars is still likely years into the future, I wouldn't discount Tesla's position here. In fact, investors could be in store for a big surprise this summer regarding the Robotaxi.
The second pillar of Tesla's AI ambitions is humanoid robots. For years, Tesla has invested significant sums into a humanoid bot called Optimus. These robots learn how to perform tasks over time so that they can assist humans. For Tesla, an obvious use case here is to integrate Optimus into the factories to help workers complete manufacturing processes more efficiently.
Again, while this might seem like a nominal feat, the compounding gains from more efficient warehouse operations could lead to massive cost savings and higher revenue over time as more cars are produced. Similar to Tesla's autonomous driving software, it could give Tesla the opportunity to sell Optimus to other businesses that rely heavily on human labor.
Optimus is the product Musk is most bullish on. In fact, he told investors, "I think Optimus will be more valuable than everything else combined." And while it may seem like humanoid robots are a lofty goal that's far away, Musk hinted that Optimus could be in Tesla factories in some capacity before the end of the year.
Should you invest in Tesla stock?
So, will Tesla reach $2,000 per share within the next three years? I can't say for sure. The bigger idea is that Tesla is evolving from an EV business to an AI services company. Robotaxi and Optimus could bring Tesla into an entirely new category beyond EVs.
Given that the AI revolution is still very much in its early innings, I'd keep a close eye on Tesla. Both Optimus and self-driving capabilities could be here sooner than most investors are expecting. As such, should the company execute on its ambitions in autonomous driving and robotics, I'd expect the company's valuation to increase significantly.
Investors should employ a long-term time horizon when considering any position. But with shares down roughly 30% so far in 2024, I think investors have a unique opportunity to buy the dip right now and take advantage of some under-the-radar AI themes inside of Tesla.
