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Elon Musk believes that artificial intelligence (AI) will enable Tesla to join the $1 trillion club By The Motley Fool


From shortfalls in vehicle deliveries to shrinking profit margins, Tesla's (TSLA 2.22%) third-quarter earnings report gave investors few reasons to cheer. While Wall Street analysts express concerns over the company's financial profile, Tesla's CEO, Elon Musk, did his best to curtail worries over the long-term viability of the operation.  

While companies such as Microsoft, Alphabet, and Amazon currently dominate discussions about artificial intelligence (AI), Musk certainly grabbed people's attention during the earnings call when he said AI "has the potential to make Tesla the most valuable company in the world by far." That's quite the proclamation. 

From humanoid robots to homegrown supercomputers, Tesla is working on innovations far beyond electric vehicles (EV). Although the stock has cratered since Tesla reported earnings last week, long-term investors may view this as a terrific opportunity to buy the dip.

Rise of the robots

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Most investors probably associate Tesla with its EVs and solar panels. However, the company has been quietly building a robotics business as well. During Tesla's Q3 earnings call, investors learned more about the company's humanoid robot, Optimus. Musk shared that "Optimus, a year ago, could barely walk, and now it can do yoga."

Although the idea of a robot doing yoga is entertaining, is this really a big deal?   

The reason investors should be so impressed by the progress of Optimus is the pace at which these bots are learning. In theory, the faster Optimus learns to perform different tasks, the quicker it can actually be useful for people and businesses.

One of the most obvious use cases for Optimus is integrating the technology into factories. Tesla could sell Optimus to other businesses that are looking for ways to reduce labor costs. While this may initially sound a little far-fetched, there are many businesses that already heavily rely on robotics for increased productivity. For example, Amazon has implemented many types of robots in its warehouses to help with tasks such as package sorting. 

Perhaps the most lucrative catalyst for Optimus sits with Tesla itself. As Optimus becomes more advanced, Tesla will likely put the bots in its own factories. The goal here is not only to reduce labor, but also speed accelerate manufacturing.

In order for Tesla to reach its long-term goal of 20 million cars produced by 2030, additional factory upgrades are almost a certainty. I view Optimus as a core pillar of future upgrades necessary to reach the company's ambitious output targets. 

According to Grand View Research, the market size for humanoid robots was $1.1 billion in 2022 and is forecast to grow at a compound annual growth rate of 21% through 2030. So while mass commercialization of Optimus isn't right around the corner, Musk may be correct in his prediction, as all signs point to Tesla disrupting yet another multibillion-dollar business.

People interacting with a humanoid robot in a lab.

Image source: Getty Images.

From superchargers to supercomputing

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When it comes to supercomputing, titans such as Nvidia or AMD might come to mind. But did you know that Tesla is also investing heavily into computer power?

One of the biggest Tesla bulls on Wall Street is Ark Invest CEO Cathie Wood. A big part of Wood's investment thesis hinges on the potential of Tesla's autonomous driving capabilities. The company's supercomputer project, dubbed Dojo, is the nucleus powering Tesla Full Self-Driving (FSD). When speaking about FSD on the earnings call, Musk said "self-driving software is amazing, drives me around Austin with no interventions." That's a pretty impressive feat.

Similar to Optimus, Tesla has the potential to license its autonomous driving technology, should it prove successful. This could drastically reduce costs for ride-hailing applications such as Uber or Lyft, or even food-delivery services like Instacart or DoorDash. As my fellow Fool.com contributor Keith Noonan noted, Wood believes that self-driving platforms could generate $9 trillion in sales within the next decade. 

Musk is creating much more than innovative cars. Tesla is becoming an ecosystem with all of its products and services woven together. This dynamic propelled Apple to a trillion-dollar market cap a few years ago. Apple's hardware devices, like the iPhone, have become so important for users that it becomes almost impossible for them to switch to another operating system.

Furthermore, many users purchase additional devices such as iPads or Mac computers, each of which is powered by specific tools from Apple's App Store. Over time, users of Apple's products become deeply engrained in the company's ecosystem and remain sticky.

Tesla is mimicking this blueprint as it looks to become an end-to-end service that is rooted in green energy.

Should you invest in Tesla?

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Both Optimus and Dojo are rooted in AI. So while concepts such as generative AI and large language models (LLMs) dominate the headlines, investors should be keenly aware that AI has far more prolific applications.

Yet since reporting Q3 earnings, Tesla stock is down nearly 16%. Tesla's market cap is about $665 billion as this writing. For reference, the company had eclipsed a trillion-dollar valuation a couple of years ago but was not able to sustain it.

When it comes to AI, big tech appears to be stitching the technology into existing products in order to create more robust tools. Tesla, on the other hand, has the potential to craft a services business that is built on the backbone of AI.

I personally believe that Musk will pull off his vision and transform Tesla into not only a leading car company, but the largest business in the world. And AI is the core powering the company forward. Although the commercialization of Optimus and Dojo are likely years away, given how much the stock has fallen, a contrarian approach may be to take advantage of the depressed valuation and accumulate some shares of Tesla right now. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon.com, Apple, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon.com, Apple, DoorDash, Microsoft, Nvidia, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.

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