The Rise In Nvidia Stock Is A Warning To Tesla—And Vice Versa

Nvidia Stock


That definitely took me by surprise. On the back of the success of its artificial intelligence-related business, Nvidia (NASDAQ:NVDA) completely obliterated its sales guidance for the current quarter. The share price appears to be headed toward a truly extraordinary increase.

The movement in the price of Nvidia’s stock conceals not only an opportunity and a risk for Tesla (TSLA) but also both at the same time. The value of Nvidia’s stock has increased by approximately $189 billion, resulting in an almost 25% increase in early trading, when it was trading just below $380 per share. According to Dow Jones Market Data, the stock has a chance to finish with the largest one-day gain in market value in history. This would put it on pace for a market capitalization of more than $900 billion and would surpass’s (NASDAQ:AMZN) stock’s $191 billion gain on February 4, 2022.

AI is the next big thing, regardless of whether or not the gain makes any sense. According to a report that was published on Thursday by New Street Research analyst Pierre Ferragu, Nvidia’s sales could reach $100 billion in 2027, up from an expected $43 billion in 2023. He recommends purchasing shares and projects that they will reach $430 within the next year.

Tesla’s electric vehicles were touted as the “next big thing” not too long ago, and the fact that the company’s stock price increased by more than 740% in 2020—shortly after the company became consistently profitable and unit sales growth accelerated—is evidence of this.

The price of Tesla stock increased by 1.1% on Thursday, but shares have lost about 40% of their value since reaching a 52-week high in August and are currently down 22% over the past year. Investor sentiment is under pressure as a result of increased EV competition, rising interest rates, and falling car prices, all of which lead to narrower profit margins.

Despite this, retail investors are crazy about Tesla stock. According to the holdings of insiders and the filings from institutional shareholders, more than fifty percent of the shares are owned by individual investors. According to data provided by JPMorgan, retail investors have spent the past week buying Tesla stock and selling Nvidia shares, despite the fact that Nvidia shares are also popular among retail investors. There is a possibility that investors will sell their Tesla stock in order to buy Nvidia shares because of a newer, more appealing investment opportunity.

A significant proportion of investors losing interest can put downward pressure on valuation multiples, though it is difficult to estimate by how much. The current price of Tesla stock is approximately 38 times the estimated earnings for 2024, whereas the current price of the S&P 500 is approximately 18 times. Nvidia stock trades 41 times.

However, there is some positive information for investors in Tesla. Tesla has its own artificial intelligence business, but rather than producing text in natural language, its AI teams are working on teaching cars how to drive themselves. After the annual meeting of shareholders in May, Tesla CEO Elon Musk gave an interview with CNBC’s David Faber, in which he stated that the company possesses “tremendous capability in real-world AI.” “Tesla will have a moment similar to ChatGPT… all of a sudden three million cars will be able to drive themselves with no one in the driver’s seat.”

The opportunity for fully autonomous driving, which Tesla refers to as Full Self Driving, is not reflected in the stock, according to Dan Ives, an analyst for Wedbush. “The Street is not valuing the AI piece of Tesla and ultimately they are a clear leader down the road on FSD and Optimus,” he writes. “The Street is not valuing the AI piece of Tesla.” It’s possible that this will add $40 to the price of each Tesla share over time. He recommends buying Tesla shares and projects that the stock will reach $215 over the next year.

“FSD is a free call option,” says Gary Black, co-founder of Future Fund Active ETF (FFND). This is an investor term for something that isn’t included in most valuations but can only benefit a stock if things break in the stock’s favor. Black is referring to the phrase “free call option.” “I don’t build [self-driving] robotaxi valuation into my $320 price target,” said one analyst, “but if Tesla’s FSD suddenly gets to zero [driver] interventions per trip, it could produce an Nvidia moment.”

There are those who do not believe that Tesla’s FSD software will soon be able to solve the issue of autonomous driving, which would result in investors valuing Tesla based primarily on its automobile business. And that automobile business, which is now subject to competition, has not been sufficient to drive Tesla stock back to its record high of more than $414 a share in November 2021, when the company’s market cap was north of one trillion dollars. The current value is somewhere around $570 billion.

When there is a lot of excitement surrounding a stock, the price may move ahead of itself. And this also poses a threat to the stock of Nvidia.

The rise of Nvidia stock serves as a warning to Tesla, signaling the need for continued innovation and adaptability in the tech industry. As both companies strive for technological supremacy, their paths intersect, creating competition and opportunities for collaboration. Tesla must stay focused on its mission to revolutionize the automotive industry while embracing strategic partnerships to address challenges and maintain its position as a leader in electric vehicles and autonomous driving.

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