Tesla's valuation shows the potential of Rivian stock.
Rivian Automotive's (NASDAQ: RIVN) market cap currently hovers around $21 billion. Meanwhile, Tesla (NASDAQ: TSLA), the biggest EV stock on the planet, has a market cap of nearly $1.2 trillion. If Rivian could attain Tesla's valuation, there would be more than 5,000% in potential upside.
Of course, Rivian won't close that valuation gap overnight. After all, it took Tesla more than a decade to reach a market cap of $1 trillion. But there are two growth catalysts forming right now that strongly suggest Rivian could eventually become the next Tesla.
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For decades, automotive stocks have been valued based on sales growth and profitability. The goal was to increase sales and profits, hoping the market will reward those efforts. There's a bit of disconnect occurring now, however, and Tesla's stock price is the perfect example of that disconnect. For nearly three straight years, Tesla's auto sales have declined. And yet the company's market cap is near all-time highs, with a sky-high valuation when it comes to metrics like its price-to-sales ratio.
Why does Tesla's stock price continue to rise despite falling auto sales? There are many reasons. CEO Elon Musk always seems capable of getting investors to focus on future potential rather than current struggles. But he's right about one thing: Trailing auto sales won't be indicative of whether an auto company will succeed long term. That's because there's another technology even more important to invest in right now rather than attempt to shore up volumes. That technology, of course, is artificial intelligence.
Put simply, AI is accelerating self-driving technology faster than ever before. AI was the missing link, it seems, in taking in a massive amount of real-time data and processing that data into actionable insights.
Tesla's massive investments in AI arguably make it the leading automaker globally when it comes to the ability to reach full autonomy. And if full autonomy is reached, demand for Tesla's vehicles will likely skyrocket. The company's robotaxi efforts, meanwhile, would see a similar sizable spike in success. AI and autonomy, therefore, are more important long term than trailing auto sales.
Rivian can't invest as heavily as Tesla, but it's clearly following the company's footsteps when it comes to ramping AI and autonomy investments. Rivian's first AI Day in December impressed analysts. Investment into AI and autonomy will be so high, in fact, that management recently shelved its 2027 profitability targets.