Nvidia (NVDA +4.39%) and Tesla (TSLA 0.44%) rank among the three best-performing stocks in the S&P 500 (^GSPC +0.77%) so far this decade, and artificial intelligence (AI) has been a major tailwind for both companies.
Since January 2020, Nvidia shares have added 2,690% due to soaring demand for AI chips. Meanwhile, Tesla shares have added 1,010% due to excitement about self-driving cars and autonomous robots. In both cases, some Wall Street analysts expect more fireworks in the years ahead.
- Beth Kindig at the I/O Fund thinks Nvidia stock will reach $410 per share by 2030. That implies 150% upside from its current share price of $164.
- Tasha Keeney at Ark Invest thinks Tesla stock will reach $2,600 per share by 2029. That implies about 735% upside from its current share price of $310.
Here's what investors should know about these companies.
Image source: Getty Images.
Nvidia: 150% implied upside
Beth Kindig, lead technology analyst at the I/O Fund, thinks Nvidia will trade at $410 per share by 2030, which implies a market value of $10 trillion. The investment thesis centers on rapidly growing demand for artificial intelligence (AI) hardware and software in data centers, as well as edge devices like autonomous cars and robots.
Nvidia is best known for its graphics processing units (GPUs), chips also known as artificial intelligence accelerators. It holds over 90% market share in data center GPUs, and analysts at TD Cowen expect the company to maintain the same level of dominance through the end of the decade, with AI chip sales increasing 160% during that period.
However, investors need to understand Nvidia is more than a chipmaker. The company also leads the market for generative AI networking gear and it has a burgeoning cloud services business. "We stopped thinking of ourselves as a chip company long ago," CEO Jensen Huang told attendees at the annual shareholder meeting in June.
Importantly, while generative AI is currently the largest source of demand for Nvidia AI infrastructure, the company is well positioned to benefit as the physical AI boom unfolds. Physical AI refers to autonomous machines like cars and robots that understand, interact with, and navigate the real world.
"We're working toward a day where there will be billions of robots, hundreds of millions of autonomous vehicles, and hundreds of thousands of robotic factories that can be powered by Nvidia technology," Jensen Huang explained to shareholders last month.
So, can Nvidia reach $410 per share by 2030? I think so. That implies annual returns of 18%. Grand View Research estimates AI spending will increase at 36% annually through the end of the decade, which means Nvidia could achieve similar annual earnings growth.
In that scenario, the stock could hit $410 per share in late 2030 at a reasonable valuation of 22 times earnings. For context, the stock currently trades at 53 times earnings, which itself is a substantial discount to the three-year average of 80 times earnings.
NASDAQ: TSLA
Key Data Points
Tesla: 735% implied upside
Ark Invest analysts led by Tasha Keeney expect Tesla to trade at $2,600 per share by 2029, which implies a market value of $8.3 trillion. Their investment thesis centers on robotaxis, which are expected to account for 63% of revenue by the end of that period. Meanwhile, electric cars (26%), energy storage (10%), and insurance (1%) will comprise the remaining portion.
While Alphabet's Waymo is currently the market leader, Tesla theoretically has an edge in autonomous driving technology. Its full self-driving (FSD) software is powered entirely by computer vision, rather than a costly array of lidar, radar, and cameras like Waymo. For context, Tesla says its dedicated robotaxi (the Cybercab) will cost less than $30,000, but Waymo sensors alone can cost as much as $100,000.
Also, Tesla has more camera-equipped vehicles on the road collecting data than every other automaker combined. That data advantage should translate into better AI models. Indeed, Ark Invest says Teslas in FSD mode can drive 3,200 miles per crash on surface streets, which makes them an estimated 16 times safer than an average driver and six times safer than Waymo.
Tesla recently started its first autonomous ride-sharing service in Austin, Texas. CEO Elon Musk says robotaxis could be a material source of revenue by late next year, and he thinks Tesla will eventually have 99% market share in what could be a multitrillion-dollar industry. Indeed, Tom Narayan at RBC Capital estimates marketwide robotaxi revenue will reach $1.7 trillion by 2040.
While that outcome is plausible, I would be remiss not to mention Tesla's woes. It has lost substantial market share in electric cars in the past year due to its aging product lineup and Elon Musk's political activities. In fact, Tesla deliveries dropped 13% in the first and second quarters, despite a 35% increase in global electric car sales year to date through May, according to Morgan Stanley.
So, can Tesla reach $2,600 per share by 2029? I doubt it. While I think autonomous driving technology will be a big catalyst for the company, Ark's target price implies the stock will return 60% annually over the next four-plus years. That means Tesla's earnings would need to increase at 60% annually during the same period just to maintain its already-expensive valuation of 170 times earnings.
