Tesla or Nvidia? One will dominate in A.I., analyst says, giving it 50% upside

Published Thu, Oct 6 20227:46 PM EDT

Tech's next frontier — artificial intelligence — is still in its adolescence, but offers significant growth opportunities for suppliers and users alike, according to Truist Securities. There has been major progress in AI over recent few years, with adoption broadening across a myriad of industries, the firm's analysts wrote in a Sept. 30 research note. Both semiconductor giant Nvidia and EV leader Tesla offer ways to get exposure to AI, Truist's analysts said. Here's how they compare. Tesla, the 'dark horse' Tesla might not be an obvious AI play, but the analysts, led by William Stein, flagged its growing capabilities in this area. "We believe investors are less aware of Tesla's emerging expertise in Artificial Intelligence (AI) technologies," they wrote. "TSLA is the dark horse provider in AI." Truist said that advanced driver assistance systems — which Tesla is building — are one of the most successful AI applications to date. These include features such as automated emergency braking, adaptive cruise control and others. "The applicability to Tesla's business should be immediately apparent," the analysts wrote. They added that although Tesla can buy systems from Nvidia directly, it also sees "AI as a competitive pillar on which it can potentially build its own business to compete with NVDA." Truist gave Tesla a buy rating and price target of $333 – an upside of about 38%. That's a bit higher than the target of other analysts covering the stock. According to FactSet, 64% of analysts have a buy rating on the stock, and an average target price of around $311 — or around 29% upside. Nvidia, the 'clear' leader Nvidia has been a massive player in the development of artificial intelligence, specifically via its data center business, which designs chips used in AI. Annual growth in that business has soared as high as 200% in recent years, according to Truist – reaching an estimated $15 billion this year. "We believe the company's position in this market is less a result of its strong position in GPUs [graphics processing unit] and other emerging products, and more a result of its culture of innovation, software development tools, and ecosystem of incumbency," Truist wrote, adding that Nvidia is the "clear AI technology leader." One crucial offering: Nvidia provides "higher-level abstraction" to deliver AI application frameworks. "We view these as building blocks for customers in a wide variety of markets to fast-track their development, use, and product introduction of AI-enabled solutions," Truist analysts said. One of the smartest moves made by Nvidia is its investments in spreading the usage of its products, Truist noted. For example, it provides free hardware and training to schools regularly. "This has created an ecosystem of incumbency, and will likely require an equal or greater investment from competitors to catch up," the firm wrote. Truist gave Nvidia a buy rating and price target of $198 – an upside of about 50%. That's similar to other analysts covering the stock. According to FactSet, 73% of analysts have a buy rating on the stock, and an average target price of around $199 — or a 51% upside.