Nvidia’s Role in Tesla’s AI Development

Investors who are bullish on Nvidia (NVDA) and its potential to drive earnings and stock growth received some exciting news from an unexpected source – Tesla CEO Elon Musk. During Tesla’s second-quarter conference call, Musk expressed his admiration for Nvidia and its hardware, stating, “We’re using a lot of Nvidia hardware…we’ll actually take Nvidia hardware as fast as Nvidia will deliver it to us.”

Musk also emphasized the importance of Nvidia’s GPUs (graphics-processing units) in improving Tesla’s self-driving software. Alongside Tesla’s Dojo computing platform, Nvidia hardware plays a vital role in training cars to drive themselves. However, Musk noted that while he has tremendous respect for Nvidia CEO Jensen Huang and the work they have done, the demand for advanced training resources is so high that Tesla may need to develop its own neural net training capability of 100 exoflops by the end of next year.

For those unfamiliar, an exaflop represents an astounding level of computing power – equivalent to 1,000,000,000,000,000,000 floating-point operations executed each second. This immense computing capability is what enables complex tasks like autonomous driving or even automated essay writing for high school students.

While Musk’s comments certainly bode well for Nvidia’s future prospects, the stock has not seen a significant impact yet. As of early Thursday trading, Nvidia shares were down approximately 1.2%. In comparison, the S&P 500 was down 0.1% while the Nasdaq Composite was up 0.5%.

In conclusion, Tesla’s reliance on Nvidia’s hardware highlights the crucial role the company plays in advancing artificial intelligence and self-driving technology. As Tesla aims to expand its capabilities in neural net training, the demand for advanced resources is growing rapidly. While Nvidia has been an instrumental partner for Tesla thus far, the possibility of developing in-house capabilities may become a reality in the near future.

The Rise of Nvidia and Tesla

The success of Nvidia has been widely acknowledged, with its stock soaring more than 50% since late May. This remarkable growth can be attributed to the company’s outstanding first-quarter performance, driven by the increasing demand for AI computing.

Interestingly, Tesla has also witnessed a similar surge, with its stock also increasing by over 50% following Nvidia’s quarterly report. Although there are other factors contributing to Tesla’s rise, such as record deliveries and new partnerships with auto manufacturers, its evolution into an AI stock cannot be overlooked. During the second-quarter earnings call, conversations surrounding Tesla were dominated by discussions about Dojo, self-driving capabilities, and AI advancements.

Looking ahead, Nvidia is set to release its fiscal-second-quarter earnings in late August. Analyst Christopher Rolland from Susquehanna predicts yet another impressive showing as the competition for hardware, networking, and AI systems intensifies. Rolland expects Nvidia to report earnings per share of $2.10, slightly higher than the Wall Street estimate of $2.07. He also forecasts that by fiscal 2025, Nvidia’s earnings per share could potentially reach $15, compared to the market’s projection of $11.20 per share. Rolland remains bullish on Nvidia stock, recommending a Buy rating with a price target of $575.

In terms of valuations, if Nvidia were to achieve earnings per share of $15 by fiscal 2025, its stock would be trading at about 31 times the earnings projected for calendar year 2024. In contrast, Tesla’s stock trades at approximately 59 times the estimated 2024 earnings, Intel’s stock at 20 times, and General Motors’ stock at six times. Comparatively, the S&P 500 index trades at around 18 times the estimated 2024 earnings.

As Nvidia continues to thrive in the AI industry and Tesla expands its technological footprint, both companies remain at the forefront of innovation and market potential.

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