Tesla’s stock price surged by 10% following an increase in its target price by Morgan Stanley, which was raised from $250 to $400. This significant increase was attributed by analysts to the impact of Tesla’s Dojo supercomputer.
Dojo serves as an AI computing system primarily employed for the purpose of processing videos from drivers and facilitating autonomous driving capabilities.
Companies typically rely on Nvidia’s graphics cards (GPUs) for AI computing tasks, and Tesla, like many others, extensively used them. However, due to supply constraints with Nvidia cards, Tesla made the strategic decision to take matters into their own hands and developed Dojo, including the creation of their custom chip known as D1. Tesla was responsible for the design of D1 and partnered with TSMC for its fabrication.
The bull case here is that we all know how hot Nvidia GPUs have been and how the AI hype has driven up its share price this year. If Tesla manages to develop its own AI chips that can rival the performance of Nvidia GPUs, it would constitute a significant accomplishment and position Tesla to capture a share of the AI spotlight.
This development could open up new avenues for Tesla, potentially leading to the expansion of their business into various industries by offering an alternative AI chip that competes directly with Nvidia.
According to Morgan Stanley analysts, the potential impact of Tesla’s Dojo supercomputer on the electric vehicle manufacturer’s market value is substantial, with the possibility of a $500 billion increase. (At the time of writing, Tesla’s market capitalization stood at $857 billion.)
However, the current reality is that Dojo is still in its early developmental stages, and Tesla continues to rely heavily on Nvidia chips. Therefore, Tesla cannot entirely depend on Dojo at this juncture. A case in point is the recent deployment of the Tesla AI Cluster, which went live last month and utilized 10,000 Nvidia H100 compute GPUs.
As a result, a significant portion of the increase in the target price can be attributed to the future potential of Dojo rather than its current capabilities. Nevertheless, Tesla has consistently demonstrated its ability to achieve technological breakthroughs, albeit often taking longer than initially anticipated. This suggests that Dojo may indeed emerge as a formidable force in the years to come.
I personally welcome Tesla’s 10% jump as the stock market really needs some direction. Market trends have been notably indecisive – one week up and another week down. For the bull to be convincing, the S&P 500 has to surpass the 4,608 mark, or conversely, to dip below 4,335 for a bearish move. Without these significant shifts, the market is likely to remain range-bound and directionless within this range.
