Excitement surrounding breakthroughs in artificial intelligence (AI) has led to big gains in the stock market over the past year. Tech heavy Nasdaq Composite 43 percent growth in 2023, and up 8 percent so far this year.
However, most of these gains can be attributed to a small group of stocks known collectively as the “Magnificent Seven” — a catchy moniker that Microsoft, apple, the alphabet, Amazon, Nvidia, Meta platformsAnd Tesla (NASDAQ: TSLA ).
Interestingly, Tesla has Only A member of the Magnificent Seven that has had a negative return over the past year, it is down nearly 11 percent at the market close on April 5.
As its megacap peers continue to push the AI narrative, Tesla’s advances in artificial intelligence are being overlooked as electric vehicle (EV) demand begins to cool. Let’s break down why now is a profitable opportunity to acquire Tesla shares and consider preparing for a long-term holding.
More than a car business
The main knock against Tesla is that the company is nothing more than a car business. While developing a battery-powered vehicle sets Tesla apart from many older automakers, bearish investors will also argue that it’s an expensive endeavor.
Nevertheless, Tesla’s financial and operating results prove that there is a large market for EVs. In 2023, Tesla expects revenue of $96.8 billion, up 19 percent year-over-year. About 85% of the company’s sales came from the car business, with the rest coming from Tesla’s energy storage and services operations.
Considering that unusually high inflation and rising interest rates weigh on the economy through 2023, I find these results quite impressive. More importantly, Tesla operated at consistently profitable levels last year despite a tough macro environment.
Tesla grew its net income 19 percent last year, reporting $15 billion on a generally accepted accounting principles (GAAP) basis. And although the company’s free cash flow of $4.4 billion represents a 42 percent year-over-year decline, the more important point is that Tesla still remained in the green overall.
With more than $29 billion in cash on the balance sheet, let’s explore some of the ways Tesla is building beyond EVs.
The rise of the robot
One of the most notable artificial intelligence (AI) projects that Tesla is working on is in robotics. The company is developing a humanoid robot called Optimus, which it hopes to implement in factories in the long run.
The primary selling point is that factories powered by Optimus bots can achieve a new level of automation productivity. But a major goal is related to the labor industry. Should Tesla begin commercializing Optimus, humanoid robotics has the opportunity to improve manufacturing, logistics, retail, and more.
While a world connected with humanoid robots may sound like science fiction, it’s worth noting that many other AI enterprises are also investing in the technology. For example, Nvidia hired Jeff Bezos and Intel Earlier this year in a $675 million funding round for a startup called Figure AI, which competes with Tesla’s Optimus. Moreover, ChatGPT developer OpenAI has invested in both Figure AI and Android startup 1X.
Goldman Sachs $38 billion addressable market forecast for humanoid robotics by 2035. I won’t sleep on this opportunity given Tesla’s early entry into the space. Additionally, with a $42 trillion labor market, Tesla has a greenfield opportunity to capitalize on robotics by expanding its core car business. And EVs are expanding beyond production.
A billion miles of data and counting
Another opportunity where AI could play a role for Tesla is in autonomous driving. There are many companies investing in self-driving capabilities, but most have not made measurable progress.
Over the past several months, a subsidiary of General Motors Cruise has faced significant hurdles in its autonomous driving roadmap. By contrast, Alphabet’s self-driving car business Vemo has attracted people. Uber For possible partnerships down the road.
But with more than 1 billion miles of data collected, Tesla has an edge over the competition. The company is the undisputed leader in self-driving data collection, which it uses to improve and train its autonomous driving software models.
Right now, Tesla stock trades at a price-to-sales (P/S) ratio of just 5.9 — the second-lowest of the Magnificent Seven. With shares down 34 percent so far in 2024, it’s hard to imagine things getting much worse.
Long-term investors shouldn’t discount the AI vision that Tesla is building beyond car sales. The company is very much in the midst of an AI revolution — but with all eyes on vehicle sales, investors are overlooking Tesla’s long-term opportunities. I think now is a great time to scoop up shares and buy short Tesla stock.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spotako holds positions in Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia, Tesla, and Uber Technologies. The Motley Fool recommends General Motors and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $25 calls on General Motors, long January 2025 $45 calls on Intel, long January 2026 on Microsoft $395 calls, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a Disclosure Policy.
Generational Investment Opportunity: 1 Artificial Intelligence (AI) Stock to Buy Now and Hold Forever was originally published by The Motley Fool this April.