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Tesla’s Exciting New Upgrade Propels Market Growth

Key Points

  • Tesla received an upgrade from Morgan Stanley that highlighted the Dojo supercomputer as a $500 billion wild card. 
  • Dojo positions the company as a software and service provider for computer vision and AI companies. 
  • The UAW strike presents an opportunity for this non-union company, as it ramps up production. 
  • 5 stocks we like better than Tesla

Morgan Stanley NYSE: MS is going all-in on Tesla NASDAQ: TSLA. The firm raised its rating on the stock to Overweight from Equal Weight and set a new price target. The new target is $400 and the new high-price target among analysts. It is a 60% increase from Morgan Stanley’s previous target and 60% above the recent price action, so why? 

The reason is Tesla’s position in the AI market. Analyst Adam Jonas calls the company’s Dojo supercomputer a $500 billion wild card and likens it to Amazon’s NASDAQ: AMZN opportunity with AWS. In his view, the company’s future includes software and services, fixed-price car sales, and power delivery. 

What is Dojo? Dojo is Elon Musk’s answer to the tight supply of Nvidia NASDAQ: NVDA GPU superclusters. To put it simply, the company says it cannot obtain enough of them to train their cars, so they developed their own system. Dojo is a computer-vision-focused AI supercomputer that collects imagery from Tesla vehicles. Dojo uses this data to train the company’s machine-learning models for full self-driving vehicles.

Similar to other projects by Musk, the Dojo architecture is unlike anything else currently being done and has the potential to advance AI technology significantly. 

The Analysts Signal a Bottom For Tesla 

The analysts’ activity in Tesla has been mixed this year, but it now indicates a turning point for the market. The consensus price target and rating have decreased compared to last year, but the price target is currently trending higher compared to the previous month and quarter. The Morgan Stanley upgrade is a step in the right direction. 

The Morgan Stanley upgrade is the first since June and is countered by three downgrades in the same period, but even those downgrades are not as bearish as they could be. Two of the three downgrades still suggest holding the stock and view it as fairly valued near $260. Additionally, Tesla stock has seen several price target increases, which have pushed it above the current consensus. 

Recent data from China may lead analysts to continue raising their price targets this year. China’s Passenger Car Association reported that August sales hit a record for the month and were led by electric vehicles (EVs) and hybrids. EV and hybrid sales grew by 35%, and Tesla sales increased by 31% compared to the previous month, despite increasing competition. 

The takeaway is that while the targets for Q3 appear robust, the analysts may be underestimating the growth of TSLA. They predict revenue to be flat compared to the previous quarter, which contradicts the data from China. Assuming the company posts similarly strong results in other markets, Q3 revenue should grow sequentially, even with the recent price cuts. 

An Opportunity in the Wings For Tesla 

The imminent autoworkers strike presents a potential catalyst for Tesla and its share prices. Tesla is the only major OEM (Original Equipment Manufacturer) not represented by unions and stands to gain ground against its competitors. Analyst Dan Ives of Wedbush sees the strike as the worst in 50 years and one that could hinder the Big 3 automakers’ transition to electric vehicles (EVs). 

In addition to potentially causing delays and pushing back the timeline for EV production ramps until 2024, the strike could eliminate any pricing advantages that the Big 3 automakers currently have. The UAW (United Auto Workers) not only demands higher pay but also seeks shorter work weeks and other high-cost concessions that will impact automakers’ profits. Meanwhile, Tesla will continue to increase production at its Gigafactories. 

Tesla’s stock price rose over 6.0% following the Morgan Stanley upgrade, and it may continue to rise. The stock has found support at the long-term 150-day EMA (Exponential Moving Average), a critical support level. If the market follows through on this signal, the next resistance target is around $280. A move above that level would be bullish and could potentially push the stock up to $300. Beyond that, the next earnings report will be a determining factor. Tesla is scheduled to report its earnings in mid-October, and expectations are low. 

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the 5 stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Tesla wasn’t on the list.

While Tesla currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.

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