GM Stock (NYSE:GM)
A frenzy has been created in several stocks, including Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA), due to the fact that artificial intelligence has the ability to reduce costs while also driving sales. The question of whether or not there is some value hidden in AI that is held by other large companies should be asked by investors.
It’s possible that General Motors (NYSE:GM) will be one of them. In a research report published on Tuesday, an analyst from Morgan Stanley named Adam Jonas pointed out that the automaker, which has been in business for 114 years, has invested billions of dollars in its Cruise robotaxi business and in developing its advanced driver assistance products called Super Cruise and Ultra Cruise.
The Cruise division of General Motors operates a fleet of robotaxis in a select number of cities, with the intention of expanding the service to additional locations in the near future. In addition, the Ultra Cruise mode is intended to perform the majority of the necessary driving tasks during the morning commute. (Drivers still need to keep their full attention on the road at all times.) These applications and services of autonomous driving technology are comparable to what shareholders anticipate from Tesla (NASDAQ:TSLA).
Tesla AI is a topic that is frequently discussed among Tesla investors. Elon Musk, CEO of Tesla, claims that his company’s artificial intelligence capabilities rival or even exceed those of any other company. In May, Elon Musk told CNBC that he anticipates Tesla will have a “ChatGPT” moment when the company’s driver assistance technology will have advanced to the point where cars will be able to drive themselves.
Nvidia (NASDAQ:NVDA) recently announced its financial results for the company’s first fiscal quarter. Since then, Tesla (NASDAQ:TSLA) shares have increased by approximately 40%. As a result of the exploding demand for AI-related computing, Nvidia’s sales guidance for the second quarter came in approximately fifty percent better than what Wall Street was expecting. Since then, Nvidia stock has increased by approximately 41%.
Over the same time period, GM stock has increased by approximately 16%, while the S&P 500 index has increased by approximately 6%.
“Despite the recent bounce, GM shares trade at [price-earnings ratio of] approximately six times,” added Jonas. “This suggests that the stock has not been re-rated on the AI valuation wave.”
He wonders what General Motors could do to rouse investors from their complacency regarding GM and AI. According to what he writes, one possibility is to let Cruise expand its operations one city at a time. Investors will eventually take notice of the company when its revenue becomes significant. The unlocking value may also be accomplished through the implementation of a potential new organizational structure, which may involve the staging of a partial initial public offering.
There is some merit to be found there. The current price of Tesla and Nvidia shares is approximately 53 and 44 times the companies’ estimated earnings for 2024, respectively. Jonas, who has a Buy rating on GM shares, does not believe that those multiples are likely to be achieved. His price target of $38 is equivalent to approximately nine times his estimation of the company’s earnings for a “normal” year.
Another one of GM’s many issues is that its share price multiples are significantly different from those of Tesla and Nvidia. The value of GM is comparable to that of a value stock, in contrast to the value placed on Tesla and Nvidia. Value investors are not interested in paying for potential; rather, they prioritize earnings and cash flow in the present.
This view of GM is not likely to alter, and persuading GM investors to put money into a start-up operating within a traditional company may prove to be a challenge more difficult to overcome than the problem of autonomous driving itself.
Featured Image: Megapixl
