Cathie Wood Says This Stock Is the Biggest AI Play, and It Could Soar 716% to a $6 Trillion Valuation by 2027

If you ask investors to name a company that specializes in artificial intelligence (AI) stocks, chances are they'll mention Nvidia. The huge growth of the company is largely due to its AI data center chips. This has resulted in an incredible 238% increase in the company's stock price so far in 2023.

When Cathie Wood considers the most promising prospects in the field of artificial intelligence, she recommends a distinctive stock. In a recent conversation with Bloomberg TV, she suggested that investors focus on AI software enterprises since they have the potential to earn $8 for every $1 that Nvidia sells in chips.

Taking this into account, Wood believes that Tesla (TSLA 9.79%) is presently the most significant artificial intelligence prospect available. You might be familiar with the corporation for its prevalent electric cars worldwide or its idiosyncratic CEO Elon Musk. However, I will describe why Wood, along with her investment organization Ark Investment Management, anticipates that independent self-driving software is forecasted to become Tesla's most profitable potential.

According to Ark, if their prediction is accurate, the value of Tesla stock may drastically increase and lead the company to become one of the most valuable companies globally.

Tesla's EVs Open Doors To More Chances

Tesla is on top when it comes to electric vehicles. This is evident as their Model Y was the most popular car sold globally across all types during the first three months of 2023. Furthermore, Elon Musk foresees the company manufacturing over 1.8 million vehicles by the end of 2023 which will be their highest output to date.

Tesla has ambitious plans for growth in the years to come. Its CEO, Elon Musk, aims to increase production by 50% each year and hopes to be manufacturing 20 million cars per year by 2030 with the help of 12 Gigafactories worldwide. The company's production efficiency is unmatched in the automobile industry, and it boasts the highest gross profit margin of any other car manufacturer with a percentage of 18.2% for the second quarter.

Although it remains the top-performing company in its industry, Tesla's profit margin has decreased from last year as the company has lowered car prices in order to encourage sales amidst the current economic climate. Many consumers are being cautious with their money due to inflation and high interest rates, resulting in fewer large purchases like new cars. However, being the only successful company solely focused on electric vehicles, Tesla can compete with rivals when it comes to pricing.

Tesla has a different motive for trying to cut down prices and introduce a huge quantity of cars to the market. Recently, in an interview with CNBC's David Faber, Musk mentioned that theoretically, the company could vend its cars at cost price and still rake in huge profits. The reason for this is that in the coming days, every Tesla automobile could potentially work as a medium for the automaker's self-driving software, which is boosted by artificial intelligence.

The gross profit margin can greatly increase with the use of software, as it only needs to be created once but can be sold countless times.

Tesla's Economics May Change With Self-driving Software

Ark Invest approximates that over 2.7 million individuals who own Tesla products are currently evaluating the beta edition of the full self-driving function in actual traffic scenarios. This means Tesla is far ahead of its nearest competitor by a whopping factor of 10. Additionally, CEO Elon Musk claims that these customers have covered a total distance of over 300 million miles so far.

Tesla intends to generate revenue from this software through three methods:

According to Musk, the typical private car is utilized for only 12 hours per week. As a result, it is mostly parked at the owner's residence or office. FSD technology will enable car owners to loan their vehicle to Tesla's autonomous ride-hailing service, earning additional money, with Tesla taking a portion of the proceeds.

Musk believes that by selling software and offering autonomous ride-hailing services, Tesla can significantly increase its gross margin for each vehicle produced. Musk's ultimate goal is to reach a margin of 70%, which has never been achieved before. This means that even if Tesla doesn't make any profit from manufacturing and selling cars, the additional services will still generate enough revenue to keep the company financially stable.

Tesla Stock May Reach $2,000 By 2027, Says Ark Invest

According to Ark Invest, the automatic ride-sharing sector will create a whopping $4 trillion in revenue in the next five years. Although the industry currently has little to no existence, this statement is quite daring. However, Tesla has stated that their Full Self-Driving (FSD) software may be obtainable by the general public before the conclusion of 2023.

Ark has presented some forecasts that illustrate how Tesla's business will be impacted by the emerging industry. At present, electric cars make up more than 85% of the firm's income, but it is possible that this number could decrease to below 50% by 2027. This is because self-driving cars, which are also called robotaxis, are anticipated to make up 44% of the company's earnings in Ark's financial predictions.

Ark has forecasted that Tesla will make more than $1 trillion in revenue annually by 2027, resulting in a massive enterprise value of $6 trillion. This could lead to a stock price of $2,000, representing an impressive 716% growth from its current value.

Investors should hold their horses before jumping to any conclusions. According to Ark's predictions, Tesla is expected to increase its revenue by 78% annually until 2027. This would undoubtedly be an outstanding achievement for any business, but it would be nothing short of miraculous for a company that already has almost $100 billion in revenue for the past 12 months. It's plausible that Ark's estimations exceed reality.

It's unclear how fast self-driving vehicles will become common. If they do become a massive industry worth trillions of dollars within a few years, the prediction of Tesla's stock reaching $2,000 by Ark Investments could be accurate.

Anthony Di Pizio does not own any of the mentioned stocks. However, The Motley Fool has its holdings in Nvidia and Tesla, and the company also endorses them. Additionally, for transparency, The Motley Fool provides a disclosure policy.