Morgan Stanley upgrades Tesla on Dojo supercomputer potential

Morgan Stanley upgraded Tesla to ‘overweight’ from ‘equalweight’ and hiked the price target to $400 from $250, as it argued that the company’s Dojo supercomputer could add up to $500bn to the enterprise value.

This will be expressed through a faster adoption rate in mobility (robotaxi) and network services (SaaS), said MS, which made Tesla its new "top pick".

"Investors have long debated whether Tesla is an auto company or a tech company," the bank said.

"We believe it's both, but see the biggest value driver from here being software and services revenue. The same forces that have driven AWS to reach 70% of Amazon total EBIT can work at Tesla, in our view, opening up new addressable markets that extend well beyond selling vehicles at a fixed price.

"The catalyst? Dojo, Tesla's custom supercomputing effort in the works for the past five years. Version 12 of Tesla's full self-driving system (OTA by year-end) and Tesla's next AI day (early 2024) are worth watching."

Dojo is a purpose-built supercomputer designed in-house by Tesla to train the full-self-driving (FSD) system that sits inside every Tesla vehicle.

MS said: "Dojo emphasizes 3 of Tesla's core capabilities: 1) speed, 2) performance, and 3) cost. In the near term, we believe Dojo can accelerate the development and monetization of Tesla's software and services business. Longer term, we see scope for Dojo to provide avenues for Tesla's software and hardware capabilities to extend well beyond the auto industry.

"If Dojo can help make cars 'see' and 'react,' what other markets could open up? Think of any device at the edge with a camera that makes real-time decisions based on its visual field."

At 1055 BST, Tesla shares were up 5.7% in pre-market trade at $262.72.