Tesla Stock Makes Up Nearly 8% of Cathie Wood's Portfolio, and AI Is a Big Reason for That. Is It a Buy?

Ark Invest, led by Cathie Wood, has established a reputation for taking daring risks in flourishing stocks. Wood doesn't become alarmed by short-term instability within her ETFs, and instead chooses to invest in businesses based on their potential in the long run.

Everyone knows that she has a lot of faith in Tesla (TSLA -1.19%). Right now, the company makes up 7.9% of Ark's entire portfolio, which is the biggest investment. This includes a 10.8% foothold in the Ark Innovation ETF.

According to the most recent research by Ark, which was shared in April, it is predicted that Tesla will reach a share value of $2,000 by 2027. This forecast is based on the likelihood of various outcomes for revenue, profitability, and the stock's expected value being considered. In the unlikely event of a downturn, Ark still anticipates that the stock could be valued at $1,400.

In essence, these presumptions stem from Tesla's dominance in the realm of artificial intelligence (AI) and their data collection, which has led to the advancement of their self-driving technology beyond human capabilities. In response, Ark anticipates that Tesla's primary source of revenue will derive from their robotaxi ventures within the next six years.

Tesla's shares have increased two times in value already this year, but it's still 39% lower than its highest price of $414 per share. Cathy Wood, an investor, predicts that the price per share will reach $2,000, which could potentially result in a return of eight times the current share price of $252. To understand this growth projection, let's analyze the company's assumptions.

Positive Predictions For Tesla's Robotaxi Launch

The future worth of Ark is mostly based on Tesla's success in the realm of robotaxis. During the first three months in 2022, CEO Elon Musk stated that they were aiming for the mass production of robotaxis by 2024. Ark shares a similar view, predicting that Tesla will commence offering robotaxis commercially, presumably in 2024 or 2025.

According to Ark, there is a small chance that Tesla will start selling its robotaxis in 2023, with a probability of only 22%. This outcome seems unlikely right now. However, the probability of Tesla launching its robotaxis in 2024 is a bit higher at 33%. There's also a 30% probability set for a launch in 2025.

As stated in Ark's study, it is possible for Tesla to make more than $1 trillion in income by 2027. The bulk of this money, approximately 44%, would be generated by their robotaxis while 47% would come from their electric cars. The remaining earnings would come from clean energy sources such as solar panels, traditional ride-sharing services that include a human driver, and insurance.

Wood's prediction of Tesla's prosperous future may have merit, but the issue might lie in the timing of Musk's goal of achieving success by 2024. The timeline appears to be impractical since it only allows for two years to undergo testing and acquire the needed regulatory authorizations. While there have been recent advancements and victories for two robotaxi enterprises in California, worries about safety persist and must be dealt with.

Additionally, Tesla has not yet collected sufficient information to surpass the driving abilities of human beings with their autopilot technology. Although they are advancing quickly, their Dojo training computer has not reached the desired level yet. During the earnings call for the second quarter, Musk acknowledged that his earlier anticipations about achieving absolute self-driving were indeed optimistic.

I would not purchase the stock with the assumption that Tesla will unveil robotaxis in the foreseeable future, causing its stock price to surge. Nonetheless, I am convinced that investors do not need to make bold growth projections from new ventures to justify buying the stock presently.

The image for the Tesla Gigafactory in Texas was provided by Tesla.

Tesla's Purchase Is Worth It: Here's Why

Earlier, Musk described the potential for robotaxis as a mammoth chance. Apparently, the market for self-driving taxis is predicted to rise at an impressive annual rate of 91.8% from 2023 until 2030, as estimated by MarketsandMarkets. This is a major opportunity set to boom, and Tesla is already poised to take full advantage of it.

Tesla's worth comes from the fact that it has a higher number of vehicles on the streets, which are collecting data. This data is then used to make their Dojo training computer more intelligent than a person who is driving the car. As a result, the stock may be underestimated at present, all thanks to the amazing software potential.

According to Wood, Tesla is not just about the increasing sales of electric vehicles, but rather about the expansion of their self-driving software. Wood considers Tesla to resemble an AI platform that provides software as a service.

You can trust what the CEO said, not just Wood. During the last earnings call, Musk stated that Tesla is willing to license both the FSD software and hardware to other automobile firms. He also disclosed that the company is conversing with a top manufacturer about adopting this software.

Tesla has shown that it can make more money by improving the way it makes electric vehicles. Once regulators allow self-driving robot taxis on the roads, Tesla will have even better ways to make them quickly and easily. And if Tesla allows other companies to use its software, it will make even more profit.

It appears that only obstacles related to the progress of development or compliance with regulations could hinder Tesla's success. Nevertheless, investors may potentially experience a profitable outcome with the company's stock even in these scenarios. Despite having a relatively high price-to-sales ratio of 9.3, the expensive price tag is understandable for a company of Tesla's caliber that continues to expand its existing businesses while exploring new possibilities for growth.

With Tesla's current strengths in brand recognition, ability to innovate in software and potential in the realm of robotaxis, it would be wise to consider keeping some investment in the company's stock as part of a diverse portfolio. The potential for long-term growth is promising.

John Ballard has invested in Tesla, while The Motley Fool also has investments and recommends the electric car manufacturer. Additionally, The Motley Fool adheres to a policy of making all relevant information available to its users.