If one wishes to examine the surreal disconnect between the main street and Wall Street, look no further than Tesla's latest stock price target upgrade courtesy of Morgan Stanley's perma-bull analyst, Adam Jonas.
BREAKING: Morgan Stanley's Adam Jonas has increased his $TSLA price target by 60% to $400 per share (from $250), and upgraded his rating to Overweight (from Equal-Weight). $TSLA is now their "Top Pick"
"We believe that Dojo can add up to $500B to @Tesla's enterprise value,… pic.twitter.com/TY3JxDzUvd
— Sawyer Merritt (@SawyerMerritt) September 10, 2023
Adam Jonas revived the bullish spirits in Tesla shares this week by publishing an epiphanous investment note over the weekend, one that raised Morgan Stanley's target price for Tesla shares by a whopping 60 percent to $400 per share. So, what was the catalyst behind this substantial upgrade? Tesla's in-house supercomputer, dubbed the Dojo.
For the benefit of those who might not be aware, the Dojo supercomputer consists of thousands of Tesla's bespoke D1 chips housed in an AI data center. These chips are built on a 7nm node and employ a unique packaging technology called the InFO-SoW. With no memory directly attached and superior die testing capabilities, each 25-chip cluster is optimized for Tesla's unique use-case: neural network deep learning based on image and video feeds, which generally achieve poor utilization on GPU clusters such as NVIDIA's A100 chips.
Adam Jonas believes the Dojo supercomputer can accelerate Tesla's efforts to deliver the holy grail of autonomous driving: the L5 autonomy. This should translate into substantially higher SaaS revenues, especially if Tesla starts licensing the FSD capability of the Autopilot to other OEMs. Additionally, the feat would also markedly increase the FSD uptake among Tesla customers, thereby driving the ARPU metric materially higher.
Tesla Q2 call: "expect to use both Nvidia and Dojo .. we're using a lot of Nvidia .. we’ll actually take Nvidia hardware as fast as [they deliver] .. might not need Dojo [if Nvidia delivers]"
Sell side: imaginary scenario about cost savings using only internal chips vs. old A100
— tae kim (@firstadopter) September 12, 2023
However, there are a few caveats associated with this optimistic view. First, Jonas estimates that Dojo would deliver cost savings of around $6.5 billion to Tesla. Critically, this estimate only compares the D1 chips with NVIDIA's increasingly obsolete A100 GPUs instead of the cutting-edge H100 chips.
Tomorrow, @Tesla will turn on a massive and very expensive 10,000 unit NVIDIA H100 GPU cluster to help it train FSD. But that got me wondering, what is the difference between these new H100 GPUs and the older A100 graphics processing units (GPUs) Tesla has been using for the last… pic.twitter.com/ZoCjR1SdjI
— Sawyer Merritt (@SawyerMerritt) August 28, 2023
Moreover, Tesla recently unveiled a $300 million AI supercomputer that features 10,000 NVIDIA H100 GPUs. This endeavor is patently distinct from Tesla's Dojo-related efforts and is a testament to the EV giant's prudent strategy of not placing all of its proverbial eggs in a single basket.
The question then emerges: If Tesla itself is not choosing Dojo as its one-stop solution to achieving L5 autonomy, why does Jonas think that the supercomputer merits a 60 percent stock price upgrade?
MORGAN STANLEY: "Investor feedback to our $TSLA upgrade has skewed towards push-back. If limiting the scope to only making and selling cars, Tesla is a significantly overvalued equity. We think there is far more going on below the surface." [Jonas]
— Carl Quintanilla (@carlquintanilla) September 13, 2023
It is hardly a surprise, therefore, that Adam Jonas is now facing a lot of "push-back" on his uber-bullish call vis-a-vis the Dojo supercomputer.
McCullough: Steer Clear of Adam Jonas’ Tesla Pump
If Elon Musk is the master sensei at selling stock, gullible investors are the young grasshoppers, leaping headfirst into the latest narrative. This week, it’s “Dojo” that has Tesla’s stock price surging.
Morgan Stanley analyst… pic.twitter.com/DbL19sPeBN
— Hedgeye (@Hedgeye) September 11, 2023
In hindsight, Jonas' investment note might well be an orchestrated stock pump, given the plethora of flowery assumptions contained in his analysis.
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