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Wall Street is showing increased interest in Tesla as an artificial intelligence stock. Morgan Stanley analyst Adam Jonas recently upgraded Tesla stock to Buy from Hold and raised his price target to $400 a share from $250.
The Importance of AI
The upgrade is primarily driven by Tesla’s advancements in artificial intelligence. Tesla has developed an advanced supercomputing architecture that pushes the boundaries in custom silicon, giving the company an advantage in the $10 trillion total addressable market for autonomous cars.
Tesla as a Tech Company
Investors have long debated whether Tesla is an auto company or a tech company. According to Jonas, Tesla is both. He believes that software and services revenue will be the biggest driver of potential value creation for the company.
Potential vs. Reality
While Tesla generates sales from its Enhanced Autopilot and Full Self Driving systems, fully autonomous cars are not yet a reality. Tesla is investing billions in AI computing to train its self-driving software and make robotaxis a reality. However, for now, the software sales are not large enough to significantly impact Tesla’s profit margins.
Tesla stock was rising 5.7% in premarket trading on Monday following the upgrade. With this upgrade, more than 40% of analysts covering Tesla stock rate it as a Buy. The average analyst price target is about $254 a share, with Jonas setting a new high water mark at $400 a share.
Tesla’s advancements in artificial intelligence have caught the attention of Wall Street. With the upgrade from Morgan Stanley, Tesla’s stock is expected to outperform the market. However, the potential of AI in the autonomous car market is still to be fully realized.