The tech industry remains heavily engrossed in developments around large language models (LLMs) and chatbot capabilities. However, Wedbush Securities analyst Dan Ives emphasizes a different focal point poised to unlock substantial value: the so-called physical AI space where intelligent machines interact seamlessly with the physical environment.
In a recent discussion, Ives identified Tesla Inc. and Nvidia Corp. as the two dominant players imperative to the evolution of this physical AI era. He succinctly stated that when evaluating physical AI market opportunities, these companies stand head and shoulders above the rest. According to Ives, Tesla represents the quintessential example of physical AI in action from a visionary perspective, while Nvidia provides the fundamental technological infrastructure enabling this revolution.
Tesla’s Strategic Shift Toward Software-Centric Growth
Tesla's market narrative has gradually evolved from concentrating on vehicle delivery figures to emphasizing the expansion of its high-margin software offerings, notably the Full Self-Driving (FSD) package. Ives predicts that FSD adoption, which currently stands at about 12%, could accelerate to as much as 50%, propelling Tesla's valuation upward significantly.
He outlined a base valuation target of $600 per share but suggested that under a bull case scenario focused on escalating software margins, Tesla’s stock could reach $800. This optimistic valuation outlook hinges on several forthcoming milestones, especially the anticipated transition years of 2025 and 2026. Ives described 2025 as a crucial inflection point that sets the stage for a "golden year" in 2026, supported by the combined emergence of full self-driving capabilities, autonomous Cybercabs, and robotics initiatives.
Nvidia: The Hardware Backbone of the Physical AI Movement
Contrasting Tesla's end-user application focus, Ives highlights Nvidia’s indispensable contribution on the hardware front. Nvidia’s products, especially those engineered by CEO Jensen Huang’s leadership, form the backbone that enables advanced autonomy and industrial robotics to operate effectively.
Ives underscored Nvidia's distinctive competitive advantage, noting that the company is several years ahead—estimated at four to five years—of its nearest chipmaker counterparts in the AI domain. This lead positions Nvidia to capitalize extensively on the surge in capital expenditures flowing into AI infrastructure globally, effectively fueling the hardware demands of burgeoning AI workloads.
Energy Constraints: The Emerging Bottleneck
As the race for AI leadership accelerates, Ives points out that the primary bottleneck hindering further development is shifting away from investment or pure technological innovation toward energy availability. With more data centers currently being constructed than those operational, the resulting strain on power grids is unprecedented.
To address this looming energy crunch, Ives suggests vertical integration strategies, including specialized cooling systems and onsite power generation, will become increasingly crucial. These approaches will be necessary to sustain continued growth and deployment of AI technologies under rising power consumption demands.
He concluded that the limiting factors moving forward are not capital or engineering capabilities but the substantial challenges associated with energy supply and infrastructure.
Market Performance and Investor Sentiment
Examining recent price movements, Tesla shares have declined by approximately 4.91% year-to-date in 2026. Despite this, the stock improved by over 30% in the prior six-month span and recorded a modest gain over the trailing year. Nvidia’s stock conversely posted a 1.94% increase year-to-date, with additional gains in the six-month and one-year windows reflecting a cumulative 54.44% rise, indicating strong investor confidence.
According to Benzinga's Edge Stock Rankings, Tesla exhibits relatively weaker short-term price momentum but maintains robust medium- and long-term trends along with moderate quality indicators. Nvidia outperforms in all metrics, maintaining strong price momentum across short-, medium-, and long-term frames, coupled with impressive growth prospects.