Tesla's FSD, Nvidia's AI, who is overdrawing the future?

Nvidia's stock price closed up 24% at just under $380 per share, with a market value increase of about $184 billion, bringing its market value to about $940 billion at the close.

According to Dow Jones market data, this is the third largest single-day increase in market value for a US company in history. On February 4, 2022, it surged, with a single-day market value increase of $191 billion.

Lessons from Tesla

Artificial intelligence is considered to be the next most important trend, and Nvidia has fueled the AI boom, but be careful—it masks other issues. Not long ago, Tesla's electric cars were also considered the next big thing.

But Tesla's stock price has fallen 22% in the past 12 months, down about 40% from its 52-week high in August. Intensifying competition in electric cars, rising interest rates, and falling car prices are putting pressure on investor sentiment.

From Tesla, we can see that there are risks behind Nvidia's stock price reaction, but also opportunities.

Pierre Ferragu, an analyst at New Street Research, said Nvidia's sales could reach $100 billion by 2027, higher than the expected $43 billion in 2023. He rated the stock as "buy" and set a target price of $430.

Nvidia's Valuation

Despite this, retail investors still like Tesla's stock. According to insiders' holdings and institutional shareholder filings, more than 50% of Tesla's shares are held by small investors.

Nvidia's stock is also popular with retail investors, but according to JPMorgan's data, investors bought Tesla stock and sold Nvidia stock in the past week.

Losing the favor of a large number of investors may put pressure on the valuation, but it is difficult to say how much. Tesla's stock price is about 38 times the expected earnings in 2024, while Nvidia's is about 18 times and Nvidia's is about 40 times.

Tesla's Autopilot

However, Tesla has its own AI business, but Tesla's AI team is not generating natural language text, but teaching cars to drive autonomously.

"Tesla has tremendous capabilities in real-world AI," Tesla said in May. "Tesla will usher in the ChatGPT moment...suddenly, three million cars will be able to drive autonomously without a driver."

Wedbush analyst Dan Ives said, "Wall Street has not focused on Tesla's AI part, and ultimately they are a clear leader in FSD and Optimus," he wrote. "Over time, this could add $40 per share to Tesla's story." He rates Tesla's stock as a buy with a target price of $215.

Is Nvidia Overextended?

"FSD is a free call option," co-founder Gary Black said. "I did not include robotaxi valuation in the $320 target price, but if Tesla's FSD brings true autonomous driving, it could create an Nvidia moment."

However, not everyone believes that Tesla's FSD software will solve the autonomous driving problem quickly. Francisco Bido, portfolio manager of F/m Acceleration, holds both long positions in Nvidia and short positions in Tesla.

Tesla faces more competition, which is his concern. He said Nvidia is in a better position and added that "they have a first-mover advantage in the AI field."

Without FSD, investors will primarily value Tesla based on its automotive business, which is not enough to push Tesla back above its record high of $414 per share, when its market value exceeded $1 trillion. Today, it is about $570 billion.

Therefore, sometimes speculation can cause stocks to go too far ahead, which is also a risk for Nvidia.