Tesla (TSLA 0.23%) has emerged as one of the more surprising leaders in AI. Admittedly, companies in nearly every industry are now anxious to tout their AI capabilities. But most of them are not leaders in the field, and historically, investors have thought of Tesla as more of an automaker or battery company.
Nonetheless, Tesla has long held the attention of Cathie Wood and her team at Ark Invest, and it has grown into the fund's largest holding. But does that mean it should be yours? Let's take a closer look.
Tesla's AI
Rather than depending on the likes of Nvidia or Alphabet for AI expertise, Tesla has developed its technology in-house. The company became a leader in AI by using the technology as an enhancement to its current products. Its AI technology consists of the Tesla bot, semiconductors like its Dojo chip and full self-driving (FSD) chip, code, neural networks, and evaluation infrastructure.
While Tesla's AI technology performs various tasks, the most profound application is arguably its AI technology that powers autonomous vehicles. Tesla sells this as a software-as-a-service (SaaS) add-on that works toward powering a robotaxi business.
Ark Invest's record on Tesla
Ark Invest has a long record of correct predictions on Tesla stock. It first bought Tesla shares in the fourth quarter of 2016. At the time, Tesla traded approximately in the $12 per-share to $14.50 per-share price range. Wood saw early on its potential as both a leading maker of electric vehicles and the future of "transportation as a service," meaning Ark had AI-powered autonomous cars in mind from the beginning.
Due to this technology, Wood claimed that Tesla would rise to a split-adjusted $267 per share in 2018. The prediction proved correct, with Tesla stock surpassing that level in 2021. That proved very profitable for Ark Invest as it steadily added shares over the last 6.5 years. Wood's team now holds more than 4.3 million shares, and Tesla makes up nearly 8% of Ark's combined fund holdings.
Ark Invest's current investment thesis
Despite those past gains, prospective investors must look to the future. Fortunately for them, the technology continues to drive most of Ark's investment thesis in Tesla. It forecasts robotaxis will account for an estimated 67% of Tesla's enterprise value by 2027.
Ark further predicted this technology would take Tesla stock to $2,000 per share by 2027. This included a bear case of $1,400 per share or less, assuming EV and robotaxi platform sales fell below expectations. Hence, investors have to remember that these predictions may or may not come true.
But if Tesla reaches that price target, it will become the world's largest publicly traded company. The current price of approximately $240 per share places its market cap at approximately $770 billion. A $2,000 per-share price will take the company's market cap to more than $6 trillion. That is well over the current largest company, Apple, which supports a market cap of just under $2.8 trillion.
Should investors buy Tesla?
Assuming Tesla can succeed with its autonomous driving platform, it should continue to provide considerable returns for investors. The company has already proven it can deliver on seemingly implausible expectations. Moreover, even if Tesla's performance is more in line with Ark's bear case, it could still bring sixfold returns in the stock.
Whether to make Tesla the largest holding depends on the risk tolerance and comfort level of the individual investor. Ultimately, Wood and her team may or may not be right about the $2,000 per-share forecast, and Tesla cannot guarantee its robotaxi technology will succeed. But given Tesla's track record of success, making this AI stock one's largest position could pay off significantly over the next four years.
