Why has Tata Motors been rallying sharply and what is the tie up it has with Nvidia of the US?
Answer
Answer
The Tata Motors stock has been in the midst of a smart rally. For instance, on 16th February the stock rallied 3% and then it rallied by another 1.7% on 17th February. In realty, the investors were actually cheering the announcement that Jaguar Land Rover's (JLR), which is the UK arm of Tata Motors, had signed a multi-year strategic technology partnership deal with Nvidia, which is the world’s largest producer of graphic and artificial intelligence chips.
The idea of the alliance between JLR and Nvidia is intended to tap the huge electric car and smart car opportunity by leveraging the power of smart customized chips. That is where Nvidia of the US has tremendous expertise and deep rooted insights. Nvidia is already the most valuable chip manufacturer in the world with market capitalization closing in on $1 trillion. It is not a commodity chip maker but focuses on high value graphic and AI chips.
Together, Nvidia and Jaguar Land Rover (JLR) will collaborate to jointly develop and deliver next-generation automated driving systems. That is what the industry coming to where future growth and value will be driven by high-end chips. These driving systems are based on specially designed AI-enabled microchips specifically for carmaker. Cars are smarter and more command driven these days. That is where Nvidia fits into the whole picture.
Like some of the leading car makers in the world, Tata Motors is also betting heavily on software driven cars that are dependent on and driven by chip intelligence. The alliance will accelerate JLR’s shift from a traditional car market to a software-enabled autonomous driven car manufacturer. This puts JLR in particular and Tata Motors in general in a sweet spot to capitalize on the trend of smart autonomous cars.
However, the rally in Tata Motors was not just about chips but also about an upgrade by JP Morgan. Now, JP Morgan initiated coverage on Tata Motors with “Overweight” rating with a normalized price target of Rs.630 for the stock and best case price target of Rs.783. That is substantial upsides ranging from 26% to 54% from current levels. Specifically, JP Morgan is confident about Tata Motors achieving its target of zero net debt target by FY24.