Why Toyota Motor Stock Popped on Monday

Shares of Japanese automotive titan Toyota Motor (NYSE: TM) gained 2.6% through 12:25 p.m. ET Monday after Nikkei Asia reported that Toyota is partnering with local telecom Nippon Telegraph and Telephone (NTT) to develop artificial intelligence (AI) software that can predict an imminent accident and take control of a car to stop it.

Yes, you read that right. Nikkei Asia just called Toyota an artificial intelligence stock, with all that entails for investor optimism.

What this means for Toyota Motor

It's unclear how car owners will feel about an AI supercomputer deciding on its own initiative to take over control of a car mid-drive. (They might very well not like the idea all that much.)

Investors, however, seem to think the technology will be useful. Investors may be even more intrigued by Nikkei's suggestion that, once Toyota and NTT have the AI working right, they plan to make it available to other automakers, and presumably collect license fees for the privilege.

Nikkei reports that the companies expect to roll out the new AI driving package by 2028.

Is Toyota Motor stock a buy?

It remains to be seen if the new AI project will work out at all, and if it does, whether the resulting license fees will be big enough to move the needle for a gigantic, $305 billion-a-year operation like Toyota.

Personally, I rather suspect it won't be enough to move the needle. That being said, Toyota stock is cheap enough (at just 7.2 times trailing earnings) that it doesn't necessarily have to be considered a successful AI stock to make it a bargain. A respectable 2.9% dividend yield, and even an annual profit growth rate of 4% or 5% should justify the valuation on this stock.

So long as you believe Toyota can muster up at least a mid-single-digit growth rate over the next five years, I'd say that makes Toyota stock a buy.

Should you invest $1,000 in Toyota Motor right now?

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.