Tesla (NASDAQ:TSLA | TSLA Price Prediction) stock is back in a bear market, thanks in part to continued weakness across the tech sector. Despite the latest market-wide sell-off, though, I think investors are missing some pretty big developments from the Magnificent Seven titans, especially Tesla. With the company readying to launch its “Terafab” over the weekend, Elon Musk’s empire is officially getting into the lucrative field of semiconductor fabrication.
It’s ambitious, to say the least. But that’s Elon Musk for you.
And while the latest Terafab news caught many by surprise, I do think that its explosive growth potential remains underestimated.
As analysts revisit the drawing board to consider what the latest move all means, I do think there’s even more reason to stick with Tesla, as its future becomes a bit less about electric vehicles (EVs) and more about the future of robotics, which, of course, includes the chips that go into them.
At this juncture, there’s not a great deal known about specifics. But, in due time, the details will come flowing in, and you can be sure they’ll have an impact on the share price.
Whether they’ll help shares of Tesla reverse course after slipping below the $400 per-share mark this week, though, remains the trillion-dollar question. For the bears, getting into the fab business could be another way to drive CapEx higher while increasing the magnitude of uncertainties regarding what type of return will be scored and when to expect said return. It’s not cheap to get into the semi fab business, but it has the potential to be profoundly lucrative.
Getting into the chip production business just makes sense
Given the state of the semi fab scene and the industry’s reliance on Taiwan Semiconductor (NYSE:TSM), I’d argue that Musk is making a bold move to solve an expensive problem that seems to be holding back the rapid rise of physical AI. Sure, the bears would argue that it’s not so easy to get into the field. But, then again, it’s hard to launch rockets into orbit, and it might be even tougher to thrive in the auto business.
Of course, there’s a lot of work that needs to be done before the Terafab can start producing hundreds of billions of custom chips per year. In any case, I’m sure many Tesla investors expect Musk’s $25 billion to be a success. With Taiwan Semiconductor at capacity for the 2nm process for the rest of the year, getting into the fab business is arguably the only way around the hurdle facing chip production.
Sure, it’s an expensive one that comes with many risks, but it’s either that or waiting in line and risking falling behind schedule as the physical AI revolution takes off, perhaps powering the earlier entrants into the space first.
Tesla’s fifth-generation AI5 chip looks solid, and it’ll be what’s inside the next generation of physical AI innovations, from Cybercab to Optimus. Any way you look at it, Tesla is moving fast, too fast to wait for bottlenecks in the chip scene to resolve themselves.
The bottom line
With the right support, tech and talent, I think Tesla’s bold move could be one that accompanies significant rewards. Like it or not, there’s another ambitious, high-growth project to look forward to when it comes to Tesla. And while some will fret the CapEx, others will probably swoop in for a shot at the potentially outsized gains to be had as the AI boom races forward, and Musk looks to become a “wartime CEO” in the battle for robotics leadership.
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