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Morgan Stanley Raises Tesla's Price Target to the Highest Ever With a 'Moonshot' Thesis

September 11, 2023
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Tesla Inc. shares displayed notable gains in premarket trading on Monday following an enthusiastic endorsement from Morgan Stanley, which identified a promising artificial intelligence opportunity for the electric vehicle company. This upgrade positioned Morgan Stanley's analyst Adam Jonas as the most bullish on Tesla's stock.

In his latest analysis, Adam Jonas elevated Tesla's stock (TSLA) from an equal weight to an overweight rating, citing the company's cutting-edge machine-learning supercomputer, Dojo, as the primary driver of this newfound optimism. Alongside the rating boost, Jonas increased the price target for Tesla shares to $400, a significant upward revision from the previous target of $250 per share. Notably, this elevated target is now the highest among Wall Street analysts, according to a survey encompassing 44 analysts.

Tesla's stock surged by 5.7% in early trading, reaching $262.37. If this level is maintained, it positions the stock for its highest closing price since late July.

The comprehensive recommendation was part of a broader report by a team of Morgan Stanley analysts led by Edward Stanley. The report examined the strategic value of identifying plausible and scalable "moonshots" that have yet to be fully factored into market valuations. Within this context, the analysts singled out Tesla's Dojo project as a standout contender.

"Dojo specializes in processing visual data and is a customized tool designed to address autonomous operations, spanning applications in vehicles, manufacturing facilities, and humanoid robots. This aligns Tesla with a select group of companies, including Meta Platforms, Amazon, and Microsoft, that have developed their own proprietary computing solutions," explained Jonas and the Morgan Stanley team in their report.

Tesla unveiled "Project Dojo" in 2021 with the objective of accelerating the training of models for its self-driving initiatives. Training an autonomous vehicle's computer relies heavily on vast datasets, incurring significant capital expenditure and energy consumption.

Morgan Stanley highlighted Tesla's innovative approach to this challenge: the development of a custom silicon chip, coupled with specialized hardware and software. This integrated system is estimated to yield an approximate sixfold improvement in cost efficiency per unit of computing power, a remarkable feat.

The analysts noted that what sets Tesla's Dojo system apart as a "moonshot" is the ambitious aspiration to rival AI chip giant Nvidia. They emphasized that such an audacious claim would necessitate exceptional evidence and execution.

Dojo boasts several advantages, including its ability to train models using both simulated and real-world data. This flexibility is essential for preparing vehicles to navigate unique and infrequent scenarios, commonly referred to as "edge cases."

Furthermore, the analysts underscored that Tesla's Dojo efforts could potentially extend beyond the automotive sector in the future.

"Dojo is designed to process visual data, which lays the foundation for vision-based AI models in fields such as robotics, healthcare, and security. In our assessment, as Tesla advances in autonomy and software, third-party Dojo services could offer investors the next phase of Tesla's growth narrative," they articulated in their report.

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