Tesla Is Doubling Down on its Dojo Supercomputer. Does that Make TSLA Stock a Buy in 2025?

Electric vehicle (EV) giant Tesla’s (TSLA) maverick CEO Elon Musk has dipped his hands into many ambitious endeavors. From electric automobiles to space exploration (SpaceX) to infrastructure and tunnel construction (The Boring Company), it is safe to say that Musk is keeping quite a few balls in the air – and that’s not to mention his prominent position as the somewhat unofficial head of the Department of Government Efficiency (DOGE), the body tasked to cut federal spending and bring efficiency to government operations.

Amid all this, Tesla’s AI capabilities are frequently overlooked, even as the company remains deeply committed to its artificial intelligence (AI) initiatives. Notably, Tesla’s AI ambitions are centered around its supercomputer, Dojo, on which the company is making a significant bet.

About Tesla’s Dojo Investment

The Dojo Supercomputer is Tesla’s custom-built AI training supercomputer, designed to process vast amounts of video data for autonomous driving. It plays a critical role in training Tesla’s Full Self-Driving (FSD) system by analyzing real-world driving scenarios. 

Analysts at Morgan Stanley are quite gung-ho about Dojo and what it can do for the company. In September 2023, the financial services firm released a report that projected an enterprise value-add of about $500 billion for Tesla because of Dojo.

So, with TSLA stock down by roughly one-third on a YTD basis, will Tesla’s rebound be driven by Dojo? And is the AI supercomputer powerful enough to help the Musk-led company regain its position in the trillion-dollar market cap club? Let’s have a closer look.

TSLA Q4 Earnings Snapshot

Before we dive into Dojo, here’s a quick update about the EV company’s latest quarterly results.

Despite missing revenue and earning estimates in Q4, Tesla reported growth. Its revenue moved up by 2% from the prior year to $25.71 billion, and earnings increased by 3% in the same period to $0.73, missing the consensus estimate of $0.75.

Although the decline in vehicle deliveries was a disappointment, growth in some other key metrics was positive. Tesla reported a 17% and 19% year-over-year rise in charging stations and connectors to 6,975 and 65,495, respectively. 

Net cash from operating activities came in at $4.8 billion, higher than the previous year’s figure of $4.4 billion, with a marginal decline in free cash flow to $2.03 billion. Overall, Tesla ended the year with a hefty cash balance of $36.6 billion, much higher than its short-term debt levels of $14.9 billion.

Musk’s Big Bet on Dojo

Tesla’s long-term strategy extends well beyond electric vehicles, encompassing robotics, ride-sharing, and full autonomy. With a robust financial position, the company is well-positioned to maintain its leadership and deliver strong returns. A key element in this vision is Dojo, Tesla’s advanced supercomputer.

Elon Musk has consistently emphasized that Tesla is more than just an automaker—it is an artificial intelligence-driven enterprise striving to master autonomous driving through human-like perception. This ambition has been a driving force behind the development of Dojo, which Musk began hinting at in 2019 before unveiling it during Tesla’s AI Day in 2021.

Dojo leverages an extensive repository of real-world driving data collected from Tesla vehicles across the globe to refine the performance and safety of FSD. Additionally, the vast datasets processed by Dojo play a crucial role in advancing Tesla’s humanoid robotics initiative, led by Optimus.

Tesla is Working Toward AI Autonomy

Tesla’s approach to autonomy relies solely on vision-based data, demanding immense computational power to interpret and learn from vast amounts of real-world driving footage. Neural networks trained on this data continually enhance their ability to identify objects, make driving decisions, and improve performance through advanced simulations.

By developing Dojo, Tesla gains the ability to process this data more efficiently and at a reduced cost, rather than depending entirely on third-party hardware suppliers like Nvidia (NVDA). Given the high cost and growing demand for Nvidia’s GPUs, securing a reliable supply of these chips remains a challenge.

To mitigate this dependency, Tesla introduced its own AI training chip, the D1, during AI Day 2021. Produced by Taiwan Semiconductor Manufacturing Company (TSM), the D1 chip features 50 billion transistors and a substantial die size, allowing it to execute complex machine-learning operations with remarkable speed.

Tesla’s AI team has further optimized performance by integrating 25 D1 chips into a single computing tile, forming a cohesive system with high processing power and bandwidth. These tiles are assembled into racks and cabinets, ultimately constructing the ExaPODs that make up Dojo’s supercomputing infrastructure.

Tesla’s strategic move to build its own chips and AI infrastructure is expected to significantly cut costs while giving the company greater control over its machine learning operations. Beyond internal benefits, this capability could open new revenue opportunities, such as providing AI computing services similar to offerings from Amazon (AMZN) Web Services (AWS) and Microsoft (MSFT) Azure.

At present, Tesla’s AI training relies primarily on Nvidia’s GPUs, but Dojo has the potential to alter this landscape. While its full capabilities are yet to be tested against leading AI training platforms, Dojo at the very least strengthens Tesla’s computing independence, reducing reliance on external suppliers.

To drive this initiative forward, Tesla has committed substantial capital, with $500 million allocated toward constructing a Dojo supercomputer at its Gigafactory in Buffalo, New York.

Analyst Opinion on TSLA Stock 

However, the analyst community is still cautious about Tesla, even though the developments around Dojo seem exciting. They have deemed Tesla stock a “Hold” with a mean target price of $348.61. This denotes an upside potential of about 33.8% from current levels. Out of 40 analysts covering the stock, 13 have a “Strong Buy” rating, three have a “Moderate Buy” rating, 14 have a “Hold” rating, and 10 have a “Strong Sell” rating.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.