Alphabet’s Waymo: The Future of Autonomous Driving and a Multi-Trillion Dollar Opportunity

Alphabet (NASDAQ:GOOG) stands at the precipice of significant valuation growth, potentially exceeding its current $2 trillion market cap. As Waymo, its self-driving car subsidiary, transforms transportation, this company’s stock could reach over $500 a share. Here’s an in-depth analysis of what’s driving this potential surge.

Waymo’s Ride Success: A Rapid Ascent

Waymo has increased its paid rides from 10,000 to over 100,000 each week in just 12 months. In the past six months alone, it doubled weekly rides from 50,000 to 100,000.

A Vast Market Awaits

To illustrate the opportunity, consider that Uber handles more than 200 million rides per week. If autonomous rides can capture just half of that market, it would lead to 100 million rides each week, which is 1,000 times what Waymo is achieving now. Extrapolating, that could translate into 10 billion rides annually, resulting in nearly $300 billion in revenue if the average fare is $30.

Shifting Consumer Preferences

The growth of Waymo doesn’t stop at current ride numbers. More individuals may choose to ride in autonomous vehicles instead of driving themselves. Data from Earnest Analytics shows that Waymo is keeping riders engaged at a higher rate than competitors like Uber or Lyft. With reports of an 85% reduction in injury-related accidents from Waymo’s autonomous vehicles compared to traditional driving, safety could be a significant factor in attracting new customers.

Considering the current ride-hailing market is valued at approximately $300 billion, it has the potential to grow by 2-3 times. The possibility of a $1 trillion market for autonomous rides is within reach, offering substantial opportunities for companies like Tesla (NASDAQ:TSLA) that are developing their own technologies.

Alphabet’s Stock Performance

Returns for Alphabet’s stock were 65% in 2021, -39% in 2022, and 59% in 2023, highlighting volatility. In comparison, the Trefis High Quality (HQ) Portfolio of 30 stocks has consistently outperformed the S&P 500 each year during the same timeframe. This suggests that while Alphabet has its ups and downs, the HQ Portfolio offered steadier returns.

Is Competition a Concern?

While several companies are pursuing autonomous driving, Waymo holds a competitive edge. Its closest rival, Cruise, backed by General Motors, lost its driverless permissions in California after a significant accident. Furthermore, Uber exited the self-driving taxi market six years ago and now collaborates with Waymo on services in select cities. Though Tesla is a recognized player with its significant vehicle fleet, it is still gradually entering the autonomous driving space.

Waymo benefits from advanced technology, utilizing high-resolution cameras and various sensors to gain an extensive understanding of its environment. Additionally, Google aids this process by crowdsourcing data from its vast user base, enhancing its machine-learning outputs, which gives Waymo a considerable advantage in navigating complex driving situations.

Maximizing Profit Potential

Significantly, Waymo operates without human drivers, eliminating various costs typically associated with traditional ride-hailing systems. While software and battery costs persist, not having to pay wages to drivers could lead to high profit margins, potentially around 50%. If Waymo secures just a third of the projected $1 trillion market for autonomous rides, annual revenues might reach $300 billion, generating around $150 billion in profits. This could significantly boost Alphabet’s valuation to over $4.5 trillion at a 30x earnings multiple, suggesting a market cap of over $6.5 trillion and a price of $500 per share.

Investors might need to keep a long-term perspective, aiming beyond short-term fluctuations. Projecting out until 2030 or even 2035 could be key as Alphabet grows Waymo’s operations, capitalizing on cutting-edge technology in a potentially immense market.

[1] Returns as of 10/22/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.