AI has been grabbing headlines for more than two years now, and there’s no sign that it’s going to stop. A recent breakthrough in this realm is the rise of DeepSeek, a Chinese AI startup that has rapidly gained prominence. DeepSeek’s success, achieved with lower costs and less advanced hardware, challenges the prevailing assumption that substantial capital expenditure is necessary for AI development.
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Meanwhile, Goldman Sachs analysts are closely monitoring the evolving AI landscape, focusing on the ‘Magnificent 7’ companies to help investors determine where to allocate their capital.
Among these industry leaders, Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT) stand out for their distinct approaches to AI. According to two of Goldman’s top-rated analysts, these companies are charting unique paths, yet only one emerges as a compelling opportunity in the AI-driven economy.
Let’s give them a closer look, and find out which one Goldman sees as the superior AI stock to buy.
Tesla
The first company we’ll look at is Tesla, Elon Musk’s electric vehicle manufacturer – and the only pure-play EV company in the US market to operate at a consistent profit. Musk’s genius for translating tech ideas into reality, and for endless self-promotion, has pushed the company to the very top tier of Wall Street’s public trading markets – with its market cap of $1.28 trillion, Tesla is one of just eight companies valued at over $1 trillion. The company is also the world’s highest-valued automaker, of any type.
Since Tesla’s base is in the auto industry, we’ll start with a look at the company’s production. Tesla is well-known for its battery-powered EVs, and Musk’s company has made several innovations in battery technology, improving the lifespan and performance of the cars’ power systems. Currently, the most popular Tesla models on the market are the Model 3 and Model Y; these make up the bulk of the company’s production and deliveries, by a wide margin.
In Tesla’s last production and delivery update, dated January 2 and covering 4Q24, the company reported total production of 459,445 vehicles in the quarter, with 495,570 deliveries. Of this total, Model 3/Y production accounted for 436,718 cars and 471,930 deliveries. We should note that not all of the Q4 deliveries were produced in Q4; hence, the larger delivery than production totals for the quarter.
The company’s automotive business accounted for approximately 80% of the total revenue in the last reported quarter, 3Q24. Automotive revenue came to just over $20 billion, up 2% year-over-year, while total revenue, which included revenues from Tesla’s energy generation and storage business as well as its service segment, came to $25.5 billion, for an 8% year-over-year gain. Non-GAAP earnings in the quarter came to 72 cents per share, beating the forecast by 12 cents per share and growing 9% year-over-year.
Looking ahead, Tesla is scheduled to report 4Q24 results later this week, and the Street is expecting to see a top line in excess of $27 billion.
So, Tesla is a proven and profitable company – but what does the future hold for it? It’s important to note that when Musk talks about where Tesla is going, he is more likely to talk about AI and robotics than about vehicle production numbers or styling. And more importantly, he’s focusing on the connection between AI, robotics, and automotive technology, in the form of autonomous vehicles. Tesla is developing FSD, full self-driving, software for its vehicles, and recently unveiled its robotaxi, the Cybercab. Both of these could be game-changers for Tesla, and could counteract some known, and serious, headwinds to the shares, particularly slowing EV sales, increasing competition, and the stock’s sky-high valuation.
All of this has Goldman’s Mark Delaney taking a nuanced view of Tesla. That the company has long-term potential is undeniable; that now might be a time to wait-and-see could be more debatable, but it is Delaney’s view: “We believe Tesla remains well positioned for long-term growth, given its leadership position in EVs; the breadth/depth of its technical capabilities in AI, software, and hardware; and its ability to benefit from a full set of solutions including in charging and storage. However, we see a handful of offsetting factors. These include: 1) We expect the ramp in FSD to take longer than Tesla currently targets; 2) We believe auto fundamentals could remain volatile in the near-term (with lower pricing/incentives a headwind, and we expect delivery volumes to be somewhat lower than Tesla’s outlook for 2025); 3) We see valuation as full.”
This leads the Goldman expert to rate TSLA shares as Neutral (i.e., Hold), with a price target of $345 indicating a potential 14% downside to the shares this year. (To watch Delaney’s track record, click here)
The Goldman view is in line with the Street consensus here. TSLA shares have picked up 30 recent recommendations, and the 12 Buys, 10 Holds, and 8 Sells imply a Hold consensus. The stock is selling for $400 and its $345.11 average price target matches Delaney’s. (See TSLA stock forecast)
Microsoft
Microsoft, a major force in the AI space, is up next. As an early supporter of OpenAI – the company behind ChatGPT and a key driver of the generative AI boom – Microsoft has invested roughly $13 billion into the venture.
The OpenAI investment may turn out to be something of a double-edged sword, however. While Microsoft does stand to profit handsomely from this investment, the software giant is also exposed to the smaller company’s troubles – and cutting-edge startups are known for hitting stumbling blocks. OpenAI has recently faced difficulties in upper management and a copyright suit in India, and this past October, Microsoft admitted that due to losses incurred by OpenAI, Microsoft had to incur a $683 million equity expense in its last reported quarter – a loss that is expected to increase in the next quarterly report.
But Microsoft has also been working on its own AI systems. The company has integrated AI tools and features into its Azure cloud platform, adding important new features to a business segment that is proving to be a strong revenue generator. Microsoft has also released Copilot, an AI-powered online assistant, available in Windows, in Office, and through the Edge web browser, and the company is integrating AI tech into the Bing search engine.
On the financial side, Microsoft’s last quarterly report covered fiscal 1Q25. In that quarter, which ended on September 30, the company saw a top line of $65.6 billion in revenue, up 16% year-over-year and beating the forecast by over $1 billion. At the bottom line, the company’s GAAP EPS of $3.30 was up 10% from the prior year and came in 19 cents better than expected. Importantly, Microsoft’s Intelligent Cloud segment, which includes Azure and the cloud-based AI tools, saw revenues grow 20% year-over-year, to reach $24.1 billion – or 37% of the company’s total revenue.
Analyst Kash Rangan, in his coverage of Microsoft for Goldman, is impressed by Microsoft’s expansion of its own AI projects and sees these as important keys to the company’s future success. He is upbeat about Microsoft’s prospects for the coming year, despite some apparent headwinds (read – OpenAI), and writes, “We highlight Microsoft entering CY25 as a stock uniquely poised to benefit both as AI revenue moves from the Infrastructure to the Platform and Application layers as well as AI workloads move past model-focused and product trials to wider-scale deployments. After Microsoft underperformed the NASDAQ last year, we believe the stock can inflect in CY25 due to: 1) Azure reacceleration, given the alleviation of AI-related capacity constraints as AI data centers come online, 2) A more meaningful growth contribution from M365 Copilot Revenue, which can shift investor focus from cost concerns to the revenue opportunity, and 3) EPS support, if not upside, from rising cash levels and interest income (after buybacks and dividends), despite losses related to the company’s OpenAI investment.”
Given these comments, it’s no surprise that Rangan rates Microsoft as a Buy. His price target, set at $500, implies a one-year upside potential of 16%. (To watch Rangan’s track record, click here)
Overall, Microsoft has a Strong Buy consensus rating, based on 29 Wall Street reviews that include 27 Buys and 2 Holds. The shares are priced at $431.77 and their $509.42 average price target price suggests a gain of ~19% in the next 12 months. (See MSFT stock forecast)
With the facts laid out, it’s clear that Goldman Sachs has chosen Microsoft as the superior AI stock to buy right now.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
