Tesla (TSLA) stock popped on Monday as Melius Research tabbed the EV maker a “must own” due to its autonomy efforts and as CEO Elon Musk talked up its chipmaking progress.
“One of the reasons we called Tesla a ‘must own’ in our recent launch — despite all the obvious risks — is that the world is about to change, dramatically,” Melius analyst Rob Wertheimer wrote in a note on Monday morning. “Autonomy is coming very soon, and it will change everything about the driving ecosystem … We believe the next five years will see hundreds of billions in value shift, from a collection of soon to be struggling or even obsolete companies, to Tesla.”
Wertheimer argued that the latest “spark” is Tesla’s latest iteration of full self-driving (FSD) software, version 14.1.7. The analyst said Tesla’s shift to a vision-only system, plus years and huge amounts of compute to train the system, made it much better.
Tesla stock jumped nearly 7% in midday trade.
Read more about Tesla’s stock moves and today’s market action.
That, combined with legacy automakers’ inability to compete with Tesla on an innovation and cost perspective, pushed Wertheimer to move the stock to must-own status.
“Over the past decade and even up to a year or two ago, we assumed others could catch up quickly, making for a short duration moat, even if Tesla got there first,” he said. “Now we are not quite so sure, as strategic choices made years ago seem to be working well for Tesla and less so for others.”
Over the weekend, Musk took to X to talk up Tesla’s prowess in chipmaking, which goes hand in hand with the company’s targets for building out FSD and robotaxi services. The vehicles and data centers require high-end chips to function properly.
“Most people don’t know that Tesla has had an advanced AI chip and board engineering team for many years. That team has already designed and deployed several million AI chips in our cars and data centers. These chips are what enable Tesla to be the leader in real-world AI,” Musk posted on posted on X.
Musk said the current version of the chip in cars is the AI4 and that Tesla was close to “taping out” (the final step in the chip design process) for the next-gen AI5.
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While that’s good news for the AI5, the chip was originally expected to come out sooner, but it will now be rolled out in cars in mid-2027.
“Our goal is to bring a new AI chip design to volume production every 12 months. We expect to build chips at higher volumes ultimately than all other AI chips combined,” Musk added.
Wertheimer is also bullish on Tesla’s in-house chipmaking efforts.
“The AI4 and soon AI5 chips underlying the on-board autonomy compute are specialized, powerful, and designed to be cheaper and faster than more generalized platforms as a result,” he said. “This was a large and non-intuitive bet Tesla made. And maybe Nvidia’s scale will win out over time. But we cannot picture legacy automakers making these decisions.”
Last week, Tesla stock dropped over 3% as fears over a growing AI bubble slammed “Magnificent Seven” tech names like Tesla, Nvidia (NVDA), and Microsoft (MSFT).
Tesla, with its big AI investments in data centers, chips, and software for products like FSD, has become more of an AI robotics bet than an automotive bet, and that may be a reason for recent volatility — both to the upside and downside.
Pras Subramanian is Lead Auto Reporter for Yahoo Finance. You can follow him on X and on Instagram.
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