Benzinga - by Shanthi Rexaline, Benzinga Editor.
Nvidia Corp. (NASDAQ:NVDA) shares have been on a stratospheric rally since early 2023, thanks to the head-start it had in artificial intelligence technology, and riding on its AI prowess, the Jensen Huang-led company’s market capitalization swelled past $3 trillion on Wednesday. Elon Musk was among the first to laud the feat even as the shares of his flagship venture, Tesla, Inc. (NASDAQ:TSLA) have paled in comparison to Nvidia’s.
Musk Lavishesh Praise: When a Tesla influencer shared a screenshot of Nvidia’s stock performance on Wednesday when it became the second-most valued company, Musk expressed his appreciation with a one-word comment: “Wow.”
Wow— Elon Musk (@elonmusk) June 5, 2024
Last week, Musk faced criticism after a report suggested that the billionaire had asked Nvidia to prioritize chip supply to X, a social-media platform he owns, and x.AI, an AI venture he has set up, over Tesla.
Diverging Path: Despite the bonhomie between Musk and Huang, from an investor perspective, Nvidia has generated mind-boggling returns since 2023, while Tesla has not been much of a profitable trade.
Nvidia shares have been up about 730% since the start of 2023 compared to the merely 44% gain by Tesla. The difference is more glaring when one compares the year-to-date performance. Nvidia has added 144% this year, while Tesla has lost about 29%.
Source: Benzinga
Why It’s Important: Nvidia’s outperformance is a function of the company’s strategic decision to plunge headlong into an opportunity that is going to grow bigger in the years to come. Huang’s visionary leadership set the company on a course of astounding multi-year growth. Nvidia has evolved from its modest beginnings as a gaming chipmaker to as one which has a monopoly position in the AI accelerator market.
For Tesla, it is the case of a series of missteps that pushed the company to the current predicament. Ever since 2022, the company has seen its volumes contract amid an industry-wide demand slowdown. To counter the macro-induced demand weakness, the electric-vehicle maker chose the wrong strategy of discounting and price reductions that set in motion a price war in the industry. Tesla’s margin continued to contract. But the company took it on the chin and maintained that it is focusing on perfecting its FSD so that profit hit from the EV business can be offset by high-margin recurring revenue streams by selling its FSD software.
The fructification of the FSD software is also important for rolling out Tesla’s robotaxi project.
Telsa’s argument may not be ill-founded. But the hitch is that an unsupervised FSD could be a longtime coming, given it has to win users’ confidence and also convince regulators regarding its safety and efficacy. Until such time a clear direction emerges, Tesla stocks could continue to languish.
Tesla settled Friday’s session down 0.26% at $177.48 and Nvidia closed at a split-adjusted $120.89, down about 0.1%, according to Benzinga Pro data.
Read Next: Nvidia’s Sovereign AI Thrust Accelerates Sales Growth Amid Global Government AI Investments
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