There is no hotter subject in the technology realm than artificial intelligence (AI) right now. Indeed, the "Magnificent Seven" stocks generally garner the most attention from Wall Street analysts and the investment community, given their groundbreaking developments across all aspects of the AI landscape.
During a November 2023 interview, Ark Invest CEO Cathie Wood proclaimed that Tesla (TSLA +0.91%) was the largest AI opportunity in the world.
Now, you might be thinking: How can a car company possibly be an AI play?
The answer revolves around the moves Tesla is making in addition to its electric vehicle (EV) business. And guess what? Wood isn't the only one taking note.
Famed venture capital investor Brad Gerstner increased his Altimeter Capital Management's stake in Tesla by a staggering 276% in the first quarter, bringing its holdings to 589,700 shares. Just days ago, during an interview on CNBC, Gerstner stated that Tesla has achieved a "ChatGPT moment." Those are strong words.
Let's explore what makes Tesla such a compelling part of the AI narrative and assess if shares are worth a buy right now. Gerstner's rich, but that doesn't mean investors should follow his moves without thinking.
NASDAQ: TSLA
Key Data Points
Tesla is a car company, right?
You would not be incorrect if you labeled Tesla as a car company. After all, its EVs are the biggest revenue and profit driver of the company.
However, as is the case with many innovative companies, Tesla could be viewed as much more than a producer of automobiles. In fact, both Wood and Tesla CEO Elon Musk see the company as an AI or robotics company.
The reason for this more tech-oriented vision of Tesla can be broken down into two categories: autonomous driving and humanoid robots.
Although Tesla is very much an EV manufacturer, the company is making hefty investments in data collection and storage in order to develop software that can train Tesla cars to drive themselves without any human assistance.
Moreover, as Musk and his team work relentlessly to build Tesla into the largest EV business in the world, the entrepreneur believes that humanoid robotics will play an integral role in the company's next chapter.
Image source: Getty Images.
How can AI positively impact Tesla?
Tesla's humanoid robots are called Optimus and they are meant to be integrated into Tesla's factories. In essence, the Tesla Bots would be able to work alongside human workers and be "capable of performing unsafe, repetitive or boring tasks."
The implications of this should not be overlooked. Through the power of generative AI, Optimus can become smarter over time and thereby learn to complete more sophisticated tasks.
For Tesla, in particular, there are two primary ways to benefit from Optimus. First, considering robots can theoretically work more hours than humans, the exponential labor and productivity gains that can be achieved from humanoid bots could be massive. The idea is that Optimus will speed up the production of EVs, therefore accelerating Tesla's car sales.
The more lucrative opportunity with Optimus is that Tesla could sell these robots to other businesses that are heavily reliant on human labor.
Regarding autonomous driving, Tesla has a number of interesting projects in the works. For starters, Musk traveled to China a few weeks ago in hopes of making progress on the company's self-driving efforts in the region. This is important because China is a major market for Tesla.
Similar to Optimus, autonomous driving carries some potentially lucrative tailwinds for Tesla. As it is a software product, self-driving technology will carry higher margins compared to Tesla's EVs. Moreover, the autonomous driving feature is a subscription service, making it a recurring source of revenue.
If everything works out, this one-two punch should help accelerate Tesla's top line while simultaneously generating meaningful margin expansion. As a result, Tesla is looking at a massive opportunity to bolster its cash flow, which the company could use to reinvest in the business.
Is Tesla stock a good buy right now?
So far, in 2024, Tesla's shares have cratered 28%.
Investors engaged in some heavy selling activity earlier this year following Tesla's horrific fourth-quarter earnings report. While shares rebounded a bit after the company demonstrated some improvements during its first-quarter earnings report a few weeks ago, many investors still seem to view the stock as risky.
During Gerstner's recent interview on CNBC, he said that he sees Tesla's advancements in AI as "deeply underappreciated." I think this is a perfect summation of what's going on.
On one side of the equation, Musk is moving at warp speed to push Tesla's evolution from a car business to an undeniable AI leader. On the other hand, the company doesn't have a lot to show for these investments just yet.
Make no mistake about it, an investment in Tesla should not be rooted in a bullish outlook on EVs and green energy alone. Investors considering scooping up shares should be aligned with Musk's vision as it pertains to robotics, autonomous driving, and AI.
Given how much the stock price has dropped, I think buying shares right now is a good idea. However, investors will need to exercise patience and a long-term time horizon. While I am encouraged by Tesla's AI developments, I also think the company is years away from achieving exponential gains from these innovations.
Nevertheless, buying shares and holding them for the long run could prove to be a lucrative decision for growth investors.
