Tesla shares rose sharply on Wednesday after CEO Elon Musk revealed progress on the company's work to deliver a next-generation chip capable of powering humanoid robots.
Musk posted on X that Tesla had finished "taping out" the AI5 chip. That means that the chip's design has been locked in and will be shipped out to begin fabrication.
Tesla's stock $(TSLA)$ was up as much as 8% on Wednesday before slightly paring gains. It closed at $391.95, up 7.6%, for its highest close since March 18, when it finished at $392.78 per share, according to Dow Jones Market Data.
Admittedly, the chip announcement comes months behind schedule. Last July, Musk had said the AI5 chip had "finished design," before announcing in January - half a year later - that Tesla was almost done with the design.
The chip will be used for Optimus robots and Tesla's supercomputer clusters, Musk said in a follow-up post. That's a change from earlier plans, which called for the chips to power Tesla's Cybercab, a vehicle that's set to enter volume production this month.
"Bear in mind that AI5, while it can be used for training in data centers, is primarily optimized for AI edge compute in Optimus and Robotaxi," Musk wrote in an X post on March 18.
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Now, Musk says, the current generation of chips are "enough" to make Tesla's supervised Full Self-Driving $(FSD)$ technology "much better than humans." That comment also comes after Musk, despite his bullish promises, admitted in January that it will take years to make the advanced driver-assistance system "much" safer than humans.
Investors appeared happy with the progress, especially after Tesla reached another FSD milestone just last week.
On Friday, regulators in the Netherlands approved the use of Tesla's FSD software in the country. It's the first European country to do so, and the move could open the door to wider approval in the European Union, according to Dutch regulators.
Earlier this week, UBS analyst Joseph Spak upgraded Tesla stock to neutral from sell while reiterating a $352 price target, writing that shares now trade at a "more reasonable level." Despite the recent gains, Tesla is off more than 20% from its 52-week high achieved in December.
"We think TSLA stock trades more on sentiment, narrative and momentum than fundamentals," Spak wrote in a note to clients. He added that "the stock may continue to exhibit high volatility."
Tesla last month announced a major chip-making project, the Terafab, alongside SpaceX after Musk said that suppliers like Micron Technology $(MU)$ and Samsung Electronics (KR:005930) wouldn't be capable of meeting his companies' demand. Both Samsung and Taiwan Semiconductor Manufacturing Co. $(TSM)$ (TW:2330) have been asked to make the AI5 chip.
Tesla plans to book at least $20 billion in capital expenditures this year - excluding costs associated with the Terafab and a potential solar project, which Morgan Stanley estimates could drive capex up to as high as $35 billion. Analyst widely see Tesla posting its first year of negative free cash flow since 2018.
Earlier this month, Tesla reported car sales and energy-storage product deployments below Wall Street's expectations. The company has also been slower than expected to expand its robotaxi operations despite a goal to operate in nine cities by the end of June, up from two currently.
Meanwhile, rival robotaxi operator Waymo on Wednesday announced it would offer autonomous rides to the general public in Miami and Orlando, Fla., and allow limited highway travel to Miami. Waymo, backed by Alphabet $(GOOG)$ $(GOOGL)$, offers some services in 11 U.S. cities.
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