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Electric Vehicles & Artificial Intelligence, is it Time to Buy Tesla's Stock?

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Shares of Tesla (TSLA - Free Report)  soared +10% on Monday primarily attributed to an upgrade from Morgan Stanley (MS - Free Report) , who is bullish on the EV pioneer's AI capabilities raising their price target to $400 a share. 

This represents 46% upside from current levels, with Tesla's stock up +14% over the last month and skyrocketing +121% YTD. A short-term bullish trend was that Tesla blasted through its 50-day moving average and was able to hold on to the gains ending Monday’s trading session at around $273 a share.

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Morgan Stanley’s Upgrade

Morgan Stanley’s very bullish upgrade and lofty price target were premised on Tesla’s developmental supercomputer, Dojo, which has machine-learning capabilities.

This could largely place Tesla in the artificial intelligence conversation with Morgan Stanley believing the company can sell its AI technology to other automakers. In theory, Tesla can use its own chips to boost margins and lower operating costs rather than relying on Nvidia (NVDA - Free Report)  or other chipmakers.

Ultimately, Morgan Stanley believes this may add up to $500 billion to Tesla’s valuation with AI applications already used in the company's autopilot features. Very appealing for an automaker that has a $788.74 billion market cap and is the sixth largest holding on U.S. stock exchanges just behind Nvidia.

Zacks Investment Research
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EPS Estimates & P/E Valuation

Keeping an eye on Tesla’s probability, earnings are currently forecasted to dip -15% this year at $3.46 a share compared to $4.07 per share a year ago. However, FY24 earnings are projected to stabilize and soar 34% to $4.64 per share.   

Zacks Investment Research
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From a price-to-earnings perspective, Tesla’s stock trades at 71.8X forward earnings which is 27% below its high of 99.1X over the last year but 24% above the median of 57.6X.

With that being said, the chatter of Tesla potentially adding billions to its valuation through Dojo and AI capabilities may continue justifying the premium the EV leader can command.

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

For now, Tesla’s stock lands a Zacks Rank #3 (Hold). There is certainly a bullish technical setup in TSLA shares at the moment and longer-term investors may still be rewarded for holding on to Tesla’s stock at current levels as well. 

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