Tesla’s stock price soared on Monday after Morgan Stanley analysts predicted that the company’s Dojo supercomputer could add $500 billion to its market value by enabling faster adoption of robotaxis and network services. The firm upgraded Tesla to overweight from equal-weight and raised its 12-month price target to a Street-high $400 per share from $250.
What is Dojo and why is it important?
Dojo is Tesla’s own custom supercomputer platform built from the ground up for AI machine learning and, more specifically, for video training using the video data coming from its fleet of vehicles. The automaker already has several large NVIDIA GPU-based supercomputer clusters, which are some of the most powerful in the world, but the new Dojo custom-built computer uses chips and an entire infrastructure designed by Tesla.
The custom-built supercomputer is expected to elevate Tesla’s capacity to train neural nets using video data, which is critical to the computer vision technology powering its self-driving effort. Tesla has been mentioning how Dojo gives it an edge in AI and self-driving technology since at least 2021. In July this year, CEO Elon Musk told investors that the carmaker plans to invest more than $1 billion on the project by the end of 2024.
Morgan Stanley analyst Adam Jonas wrote in a note:
The autonomous car has been described as the mother of all AI projects. In its quest to solve for autonomy, Tesla has developed an advanced supercomputing architecture that pushes new boundaries in custom silicon and may put Tesla at an asymmetric advantage in a $10 trillion total addressable market.
How will Dojo boost Tesla’s value?
According to Morgan Stanley, Dojo could open up “new addressable markets,” just like AWS did for Amazon.com Inc., by offering software and services that leverage its supercomputing power. The firm estimates that Dojo could generate $9 billion in revenue and $3.5 billion in operating profit by 2030, assuming a 10% market share of the global autonomous vehicle software market.
The analysts also see potential for Dojo to become a direct revenue-generator by offering its computing services to third parties, such as other automakers, researchers, or governments. This could create a network effect that would increase the value of Tesla’s data and AI capabilities.
Jonas argues that Tesla’s singular focus on designing its own AI chips for the purpose of training AI on videos could give it a significant advantage in the space. He wrote:
We believe that no other company has stated this level of focus on neural networks to train vision-only autonomous driving. We believe this is a significant differentiator vs other OEMs and technology companies working on autonomous driving as it implies a level of vertical integration and control over the process that others may lack.
What are the risks and challenges for Dojo?
While Morgan Stanley is bullish on Dojo’s potential, it also acknowledges that there are many uncertainties and risks involved in Tesla’s ambitious project. The firm notes that Dojo is still in development and has not been fully deployed yet. It also cautions that Tesla faces intense competition from other players in the AI and self-driving space, such as Google, Amazon, Apple, Nvidia, Intel, Baidu, Alibaba, and others.
The analysts also point out that Dojo’s success depends on Tesla’s ability to collect high-quality data from its fleet of vehicles, which requires customer consent and regulatory approval. They write:
We acknowledge there are significant execution risks around scaling up Dojo’s hardware/software capabilities, ensuring customer opt-in of data sharing, navigating complex and evolving regulatory environments (especially in China), and maintaining a technological edge over well-capitalized competitors.
Moreover, Morgan Stanley warns that Dojo could also pose some ethical and social challenges, such as privacy concerns, cyberattacks, or misuse of AI. The firm suggests that Tesla should adopt a transparent and responsible approach to address these issues and build trust with its stakeholders.
How did the market react to Morgan Stanley’s report?
Tesla’s stock price jumped more than 6% during early trading Monday morning, on the heels of the rosy prediction from Morgan Stanley’s team about the automaker’s supercomputing efforts. The base-case target from Morgan Stanley would put the stock near its record close of $409.97 in November 2021. That makes the firm a notable outlier: The average price target among analysts tracked by Bloomberg is $268.42.
The positive sentiment was also boosted by other factors, such as Tesla’s strong delivery numbers for August in China, its progress in building factories in Germany and Texas, and its plans to launch a humanoid robot called Tesla Bot next year.
Tesla’s market capitalization reached $1.2 trillion on Monday, making it the most valuable automaker in the world by far. The company is also expected to report its third-quarter earnings later this month, which could provide more insights into its financial performance and future outlook.
