Artificial intelligence (AI) may be the next big tech megatrend, just as transformative as the internet and mobile connectivity before it. And few companies have benefited more than AI chipmaker Nvidia, which has soared a whopping 207% since the start of the year. But investors have other ways to bet on the opportunity. Let's explore why Tesla(NASDAQ: TSLA) and Adobe(NASDAQ: ADBE) could make great choices.
When you put a bunch of smart people under one roof, many things are possible. And under the leadership of its visionary CEO Elon Musk, Tesla might be on track to transform itself from just an electric car maker into a more diversified tech giant through its significant investments in AI technology.
To be fair, Tesla's business model doesn't lend itself to the generative AI behind popular platforms like OpenAI's ChatGPT. Instead, the company focuses on machine learning, robotics, and self-driving cars -- a market projected to generate $300 billion to $400 billion in revenue by 2035 through applications like robotaxis and improved last-mile delivery. The challenge is making this complex technology safe and reliable enough for consumers, which is easier said than done.
While many companies slowed down on self-driving (the Ford Motor Company-backed startup, Argo, shut down in October 2022) Tesla pushes on. Last month, it unveiled its Version 12 (V12) self-driving software, which relies on AI and cameras instead of sensors like lidar and radar like many competitors. And while Tesla is probably still far from achieving full self-driving (FSD), the company has some long-term advantages that could help it cross the finish line faster than rivals.
By running a full self-driving beta program, Tesla gathers a huge amount of user data, giving it an edge in developing computer vision, a form of AI that trains computers to receive information from digital and real-world images. Breakthroughs here could have immeasurable potential because this could be the key to allowing machines to replicate human intelligence in real-world scenarios.
Unlike Tesla, creative software company Adobe has a business model that is hugely synergistic with generative AI, a technology that allows users to create content through written or verbal prompts. Tackling this opportunity will be the key to preserving an economic moat against rivals. And more importantly, it can help the company supercharge growth.
This year, Adobe began rolling out Firefly, a suite of AI tools designed to allow users to turn text prompts into images and create other forms of content. On the surface, this offering is not well differentiated from rival generative platforms like Midjourney or Stable Diffusion. But Adobe's edge will be its ability to integrate these AI tools into its existing creative software, such as Photoshop, Lightroom, and Premiere Pro.
In September, the company made its generative AI tools widely available across its creative software suite (Adobe Creative Cloud). It also expanded Adobe Firefly for Enterprises, which helps corporate users create content without risking copyright problems (Adobe trained Firefly on public domain images and its library of stock images). Over the long term, Adobe's natural advantages could help it dominate this highly competitive new industry.
Which stock is better for you?
Tesla and Adobe are great ways to bet on the AI megatrend, but they aren't exactly the same. Adobe focuses on generative AI. And this technology is already ready for consumer use, so investors can expect a near-term impact on company performance.
On the other hand, Tesla's AI efforts focus more on machine learning and autonomous mobility, which are more speculative fields that will take time to be safe and ready for consumers. This dynamic makes Tesla's AI efforts more of a long-term bet compared to Adobe.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.