Investor bets that traditional automotive companies can benefit from the artificial intelligence boom have received fresh backing from Wall Street.
Analysts from Morgan Stanley and Evercore ISI suggest that as AI applications proliferate, companies in the automotive sector stand to gain from the massive demand for power and battery infrastructure.
Shares of century-old automaker Ford Motor Co (NYSE: F) and auto parts supplier BorgWarner Inc (NYSE: BWA) have already surged on the AI wave.
Ford recently posted its best monthly performance in 17 years following the launch of an energy storage business.
BorgWarner's stock is up over 70% year-to-date as the company ramps up sales of energy storage systems to data centers.
Morgan Stanley analyst Andrew Percoco believes there is further upside for both stocks.
"The intersection of autos and energy is becoming too big to ignore," Percoco wrote in a note to clients on Wednesday, adding that auto and auto parts companies can pivot into energy storage, on-site power generation, and data center architecture.
While boundless AI enthusiasm has fueled rallies in mainstream tech stocks, investors have been seeking less obvious plays within the automation theme.
Construction giant Caterpillar Inc (NYSE: CAT) has seen its stock rise over 60% this year as traders bet on the potential of its power generation equipment.
Even a Japanese seasoning maker has become an AI focus; shares of Ajinomoto Co are up more than 55% year-to-date due to its production of insulating film for semiconductor packaging.
According to Evercore ISI analyst Chris McNally, automakers and suppliers often possess latent battery, powertrain, or electrical component capacity related to electric vehicles, which can be repurposed for AI infrastructure.
McNally stated he views the likelihood of Ford's rival General Motors Co (NYSE: GM) moving into energy storage as "very low," while Morgan Stanley's Percoco suggested GM could direct its technology and capacity toward AI-related areas.
Elon Musk's electric vehicle giant Tesla Inc (NASDAQ: TSLA) has been active in energy storage for years, with data showing this business could account for 13.5% of Tesla's total revenue by 2025.
Morgan Stanley noted that as U.S. EV demand softens and legacy automakers pull back on investments in that area, capacity can shift toward AI.
"The technology overlap is real, but the auto parts are not drop-in replacements. The opportunity is not reusing the same parts but applying high-voltage EV engineering to stationary, mission-critical power infrastructure," Percoco said.
The firm believes suppliers like BorgWarner, Aptiv PLC (NYSE: APTV), Vontier Corporation (NYSE: VNT), Lear Corporation (NYSE: LEA), Magna International Inc (NYSE: MGA), and Visteon Corporation (NASDAQ: VC) are well-positioned to leverage their manufacturing capabilities to serve data centers.
Evercore's McNally specifically highlighted Vontier and Aptiv as growth targets to watch, with Vontier's stock potentially doubling to $90 in a bull case scenario.
Since its spin-off from Aptiv on April 1, Vontier's share price has climbed over 70%. Aptiv's stock has risen about 25% over the same period.
McNally said in a Wednesday report that while "excitement may have gotten ahead of fundamentals," the application of AI in the automotive space is here to stay.
"AI now underpins the 'car industry,'" the analyst stated.
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