Last year, a group of the world’s largest technology stocks delivered an average return of 112%, far outpacing the 24% return in the S&P 500 index. They were dubbed the “Magnificent Seven.” The group includes:
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Nvidia
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Meta Platforms
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Apple
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Microsoft
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Alphabet
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Amazon
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Tesla (NASDAQ: TSLA)
However, some of those stocks aren’t looking so magnificent in 2024. Tesla is the worst performer of the bunch, and up until last week, it was sitting on a year-to-date loss of more than 40%. However, the stock recovered some ground following the release of its financial results for the first quarter (ended March 31), where CEO Elon Musk highlighted a number of growth initiatives the electric vehicle (EV) giant planned to pursue.
Cathie Wood, who runs Ark Investment Management, is one of the most bullish voices on Wall Street when it comes to Tesla. She has called it the “biggest artificial intelligence (AI) opportunity in the world,” and in a recent interview on CNBC, she reiterated Ark’s price target of $2,000 for the stock.
If Wood and her team at Ark are correct, investors who buy Tesla stock today could earn a whopping 1,234% gain. However, there are some glaring caveats.
Tesla is facing a very difficult year
Over the last few years, Elon Musk has reiterated Tesla’s goal to grow its EV deliveries by 50% annually for the foreseeable future. However, the company’s record-high 1.8 million deliveries in 2023 represented growth of just 38%. For some perspective, Tesla slashed prices by over 25% throughout the year to spur demand, as consumers grappled with cost-of-living pressures.
2024 could be even more challenging. Musk’s 50% growth guidance has been absent from Tesla’s last two quarterly reports, and he hasn’t offered any forecast for 2024 other than to say he expects deliveries to grow compared to 2023. It has led some analysts to speculate growth could slow to just 20%.
There was a time when Tesla couldn’t keep up with demand, but after building up to a production capacity of more than 2.3 million annual units, it appears consumers are shying away from EVs altogether. Legacy automakers like Ford Motor Company and General Motors have slashed billions of dollars in planned investments into their EV businesses recently, citing soft demand and the ongoing price war.
Speaking of which, Tesla faces growing competition not only from those entrenched brands, but also from Chinese manufacturers like BYD, which can afford to sell vehicles for a fraction of the price due to lower production costs. To stave off this threat, Tesla has revealed plans to start production on an affordable EV as soon as this year, and it could be priced as low as $25,000.
Cathie Wood’s forecast accounts for more than just EV sales
Musk thinks Tesla should be viewed as an AI and robotics company, not a car company, because it’s developing everything from autonomous software to humanoid robots. It recently launched version 12 of its full self-driving (FSD) software, which allows Tesla vehicles to operate autonomously — although it’s still in beta mode, so human supervision is required.
The company intends to reveal a fully autonomous robotaxi called the Cybercab in August, and this long-awaited platform forms the basis of Cathie Wood’s $2,000 price target for Tesla stock. Musk plans to build an entire ride-hailing network at Tesla similar to Uber, except the Cybercab could operate around the clock, creating a new revenue stream for Tesla with very high profit margins.
Existing Tesla customers with FSD-enabled vehicles can also monetize them when they’re not in use by lending them to the ride-hailing network.
Those customers pay a $99-per-month subscription fee for FSD, which could become a significantly profitable revenue stream for Tesla on its own, because software can be developed once and sold an unlimited number of times. The company is also considering licensing FSD software to other carmakers, which is yet another opportunity.
Is Cathie Wood’s $2,000 price target realistic?
Ark’s financial models suggest Tesla will generate $1 trillion in annual revenue by 2027, which will value the company at $6.1 trillion (translating to $2,000 per share). Considering Tesla only generated $96.7 billion in revenue during 2023, it would have to grow by a whopping 80% every year between now and 2027 to meet Ark’s forecast.
Tesla’s revenue actually fell by 9% year over year during the first quarter of 2024, which isn’t a good start. But even Musk’s previous 50% annual growth projection for EV deliveries (which he abandoned) doesn’t come close.
Ark believes 44% of Tesla’s revenue will come from the robotaxi in 2027 — in other words, the firm expects this brand-new platform to go from zero revenue today to potentially over $400 billion within the next four years. It sounds completely unrealistic, considering FSD software hasn’t even cleared the necessary regulatory hurdles, so it isn’t widely available yet.
Tesla stock is currently trading 60% below its all-time high. The company’s earnings per share shrank by 47% during Q1, driven by price cuts that are eating away at its gross profit margin. If that trend continues, upside in the stock will be limited in the short term.
Based on Tesla’s trailing-12-month earnings of $2.73 and its current stock price of $162.13, it trades at a price-to-earnings (P/E) ratio of 59.4. That’s twice as expensive as the 29.7 P/E ratio of the Nasdaq-100 technology index. That doesn’t seem like a good value, given Tesla’s top and bottom lines are shrinking at the moment.
Could Tesla stock rise 1,234% to reach $2,000 one day? It’s possible, but several things have to go right, and it certainly doesn’t appear likely within Ark’s projected time frame.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, BYD, Meta Platforms, Microsoft, Nvidia, Tesla, and Uber Technologies. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 “Magnificent Seven” Stock With 1,234% Upside, According to Cathie Wood was originally published by The Motley Fool
