Tesla stages $80 billion rally after Morgan Stanley ups price target on AI optimism

Investing

Tesla rallied to its highest share price in more than a month Monday, riding an upgrade from Morgan Stanley touting a non-vehicle revenue stream which could justify a more than $1 trillion market capitalisation for the Elon Musk-led firm.
Tesla Store in Shanghai

A Tesla store in Shanghai last week.

NurPhoto via Getty Images

Key Takeaways
  • Tesla stock gained about 10% to nearly $274, closing at its highest level since July 19.
  • That’s Tesla’s largest single-day surge since January.
  • The spike comes after Morgan Stanley analysts led by Adam Jonas changed their rating for the electric vehicle stock from hold to buy, upping their price target from $250 to $400.
  • Chief behind Morgan Stanley’s upgrade was its optimism for Tesla’s Dojo supercomputer, which Jonas estimated could add up to $500 billion in enterprise value for Tesla, which currently has a market capitalisation of about $800 billion.
  • Dojo, which is Tesla’s artificial intelligence technological network primarily designed to train its self-driving vehicles using video data, can help Tesla “extend well beyond selling vehicles at a fixed price” and become a power player in the lucrative software-as-a-service market, Jonas wrote.
  • Jonas and company’s price target is easily the highest among any analysts tracked by FactSet, predicting Tesla to hit its highest split-adjusted level since January 2022.
Big Number

$79.9 billion. That’s how much market cap Tesla gained Monday, passing Berkshire Hathaway to become the seventh-most valuable company in the world.

Crucial Quote

“Dojo may have the capability to be the core of the ‘Muskonomy,’” Jonas wrote, predicting the machine learning technology could become core to Tesla CEO Musk’s social media company X and aeronautics and communications firm SpaceX as well.

Key Background

Musk told investors in July that Tesla will spend “well over” $1 billion on developing Dojo over the next year. “With Dojo, [Tesla] believes it will be able to have a supercomputer specifically designed for its image and video processing needs,” Deutsche Bank analysts led by Emmanuel Rosner wrote in a note to clients last week.

Tesla shares are up more than 100% year-to-date, placing the stock among the top returners on the S&P 500 in 2023. Still, Tesla is down roughly 35% from its pandemic peak. Jonas had an apparent change of heart about Tesla’s AI prospects, warning investors in June that “autonomous driving and generative AI still remain, in our view, two very different technological disciplines.”

AI-exposed stocks have captained the broader market’s gains this year, led by Nvidia’s more than 200% gain which has sent the graphics processing unit maker’s market cap to over $1 trillion.

Chief Critic

Dojo is the “primary place where Tesla stands to benefit from the recent advances in AI,” but generating any revenue from selling the service to outside firms is likely a “considerably long-dated opportunity,” Barclays analysts led by Dan Levy wrote in June.

Forbes Valuation

Musk, Tesla’s largest individual shareholder, is worth $261 billion, according to Forbes’ calculations. He’s by far the richest person in the world, worth more than $60 billion more than the next-richest man, LVMH chairman Bernard Arnault. Musk grew nearly $19 billion richer Monday alone.

This article was first published on forbes.com and all figures are in USD.

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