On June 13, I published an article arguing that its market cap has soared to $3.1 trillion, making it virtually impossible for Nvidia to grow revenue and profits at the breakneck pace it needs to reward shareholders.
That same day, Ark Invest CEO Cathie Wood appeared on CNBC to defend her firm’s new, breathtakingly bold, prediction for Tesla stock. Wood predicted that the EV leader’s shares will hit $2,600 by 2029, nearly 15 times its current price of $175. In a report published the previous day, three Ark analysts laid out financial metrics they expect Tesla to reach in five years, justifying the company’s unprecedented surge in value. Their work so impressed Tesla CEO Elon Musk that he tweeted, “I think it’s worth taking a look at Ark’s analysis. I believe it’s the most accurate.”
Contrast Nvidia’s challenges with Wood’s surprising new Tesla predictions
When you compare the feat that Nvidia would have to accomplish to prove it’s a good investment with what Wood expects from Tesla, her prediction looks like an even bigger pipe dream.
In my Nvidia article, I said that to deliver a relatively modest 10% annual return to shareholders over the next seven years, Nvidia would probably need to double its market cap to $6.2 trillion by 2031. Without going into details, I estimated that to get there, the company would need $200 billion in annual net income and $580 billion in revenue by the end of that period, growing 25% and 50% annually, respectively. Bottom line: To say the least, it’s unlikely that the likes of Apple, Microsoft, and Alphabet will beat the numbers they’re currently posting. Put simply, investors have set the bar so high for the AI ​​pioneer to achieve that it’s likely to be a great company that turns out to be a bad investment.
Ark’s report projects Tesla to achieve an “enterprise value” of $8.2 trillion within five years. Enterprise value includes debt and equity, but Ark seems to attribute almost all of its figure to the latter. That means Tesla’s market cap is one-third higher than the outrageous $6.2 billion target called for by Nvidia in my Roadmap to Success, and they’re saying they’ll get there in five years instead of seven. Tesla enters the race with a huge handicap: revenues over the past four quarters were just $13.7 billion, one-third of Nvidia’s $42.6 billion.
According to Ark’s analysis, Tesla’s profits will be in the $300 billion range in 2031. To get there, it would need to grow earnings 90% every year through 2029, nearly four times the hurdle for Nvidia. Ark projects Tesla’s revenues to reach $1.2 trillion at the end of the five-year period. It would take 65% annual growth to ring the bell, a much faster growth rate than the 50% needed to make Nvidia a decent buy at this price.
Based solely on the size of the numbers relative to what other big tech companies have made and the size of Tesla’s industry, Ark’s estimates look far more outrageous than the inflated numbers baked into Nvidia’s valuation. $300 billion in profits in 2029 would be three times what Apple makes today, and $1.2 trillion in sales would be five times what Microsoft makes. Tesla’s 2029 sales would be as much as the world’s five largest automakers combined: Volkswagen, Toyota, GM, Ford, and BMW. With a market cap of $8.2 trillion, Tesla would be worth four times the total valuation of the global auto industry.
The goals investors have set for Nvidia, and Wood’s extraordinary outlook for Tesla, are based on a vision of one company dominating a revolutionary industry virtually forever, facing few competitors. For the AI ​​giant, the space is already booming, and the question is the prospect of dominating forever. For Tesla, that business — robot taxis powered by the company’s ultra-profitable software — doesn’t exist yet, and when it will arrive, how profitable it will be, and whether King Elon can control it alone are all big questions.
I am astonished by Wood’s predictions, which are absurd given what we’ve seen so far in financial markets, and by Musk’s praise of the “analysis” behind his gravity-defying goal. They may be true believers, but investors should do the math.
