Tesla (TSLA 2.97%) stock remains volatile but has quietly risen 134% over the past three years, significantly outperforming the S&P 500. The stock dipped following the company's fourth-quarter financial update, as investors weighed the prospect of higher capital spending and the near-term impact on profits.
However, the stock's high valuation continues to reflect Tesla's long-term opportunity in offering more profitable artificial intelligence (AI) services, including its Optimus humanoid robot. As Tesla prepares to start Optimus production by the end of this year, sentiment around the stock could shift, putting it on track to double over the next few years.
Image source: Tesla.
Optimus production could start by end of 2026
Autonomous cars and robots have the potential to add trillions of value to the economy in the coming decades. Tesla's high valuation suggests it is well positioned to grab its share. The company will showcase version 3 of Optimus in the first quarter, which is expected to reveal significant progress in its development with more human-like movements.
Tesla is preparing to start producing Optimus later this year. It is ending production of its Model S/X vehicles to repurpose those production lines for Optimus. This opens the door for Tesla to eventually scale output to 1 million units annually.
There are several companies worldwide developing humanoids. But Tesla has the production capacity and AI training capabilities to be a major player. The key advantage for Tesla is access to real-world video data from its vehicle fleet, which helps teach Optimus nuanced decision-making that other robot makers lack.
NASDAQ: TSLA
Key Data Points
Why the stock can double from here
One reason the stock trades at a rich valuation is Tesla's transition to a services business model, and the same applies to Optimus. The lifetime value of a product that can work 24/7 and never get tired (other than occasional maintenance) is extremely high. This is why Tesla will likely monetize Optimus like a service, similar to its robotaxis and full self-driving (FSD) subscriptions.
At full production capacity, Optimus is expected to become a highly profitable, recurring revenue business. While it will take several years before Optimus meaningfully impacts Tesla's financials, the stock market is forward-looking. As production of Optimus inches closer, the stock could begin discounting future earnings from this new product and move higher, similar to how it performed last year as Tesla launched its robotaxi service.
Patience is key. I wouldn't buy Tesla stock expecting it to double this year. But if Tesla delivers on Wall Street's expectations for earnings to grow 25% on an annualized basis over the next few years, that's enough fuel for the stock to potentially double.
