by Cathie Wood says Tesla is “the most obvious beneficiary of recent breakthroughs in AI.”
Adrienne Grunwald
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ARK Invest's Cathie Wood is an AI enthusiast.
Nvidia
is just too expensive. Your best AI idea:
Tesla
.
Nvidia (Ticker: NVDA) has had incredible success lately. Shares are up 26% over the past five days, taking the company's market cap to around $200 billion. The artificial intelligence explosion has done it. Nvidia told investors Wednesday night that it expects revenue of around $11 billion in the fiscal second quarter on the back of demand for AI-related computing. Wall Street forecast sales of about $7 billion for the second quarter.
Going on sale Tuesday, Wood's
ARK innovation
The Exchange Traded Fund (ARKK) is up less than 1% over the past five days after missing out on the Nvidia rally. The Nasdaq Composite gained about 2.5% over the same period.
“Since 2014, ARK has believed that Nvidia saw the future of AI ahead of most other chipmakers, and now we believe it will continue to advance the AI age,” Wood tweeted Monday. “However, Nvidia is priced ahead of the competition with 25x expected sales for this year.”
Nvidia shares rose 5.8% to $412.21 in midday trade on Tuesday. Tesla shares rose 3.9% to $200.64. The ARK Innovation ETF rose 1.8%. The S&P 500 and Nasdaq Composite rose 0.2% and 0.7%, respectively.
Nvidia's market cap rises to $1 trillion and stands at around $963 billion. The company is expected to generate approximately $41 billion in revenue in fiscal 2024. (Nvidia's fiscal year ends in January.) That's about 23.5 times that, a little less than the stated 25.
Wood's favorite AI game is Tesla (TSLA). “Tesla is the most obvious beneficiary of recent breakthroughs in AI, with sales up sixfold as the company targets $8-10 trillion in sales [total addressable market] in autonomous mobility by 2030,” she wrote in another tweet. “But based on our research over the past five to six years, ARK sees dozens of AI winners.”
Tesla plays in the AI in two ways. First, in the area of autonomous mobility, which Wood is referring to. Tesla CEO Elon Musk believes that his company's FSD driver assistance software will eventually be so good that all Tesla vehicles that can run the software will be turned into “robotaxis.” Tesla uses AI to teach its software how to drive. “I think it's going to be the biggest asset appreciation in history,” Musk said at Tesla's 2023 annual meeting on May 16.
Tesla has another moonshot AI chance: robots. Tesla is building an AI-powered humanoid labor-saving robot called Optimus. “My prediction is that the long-term value of Tesla, a lot of the long-term value, will be Optimus,” Musk said at the shareholder meeting. “And I am very confident in this prediction.”
All AI technologies, whether from Nvidia or Tesla, aim to improve employee productivity. ChatGPT-type AI can automate tasks performed by humans. Self-driving cars can buy commuters an extra hour a day. And robots doing simple tasks are a direct complement to human labor.
The chance is great. ARK estimates the global wage pool 30 trillion dollars a year.
Certainly, AI has the potential to disrupt labor around the world. But with higher productivity and more goods, the idea goes, the economy will create other jobs and other ways for people to pass their time.
Tesla trades at about six times sales, but profit is always more important. Nvidia has an operating profit margin of about 50%. Tesla is expected to generate an operating profit margin of about 11% in 2023.
In terms of operating profit, Nvidia looks a little cheaper. Nvidia trades at around 47 times calendar year 2023 operating profit. Tesla is trading at around 52x.
Write to Al Root at [email protected]
