Waymo Is Worth $5 Trillion For Alphabet Stock

We believe Alphabet (NASDAQ:GOOG) is positioned to grow its valuation by well over 3x from the already huge $2-trillion figure now – potentially becoming the world’s most valuable company by a huge margin – as its often-overlooked Waymo autonomous driving business quietly revolutionizes the transportation sector. Here’s why.

Fact: Waymo has grown the number of weekly paid rides from 10,000 to over 100,000 in the last 12 months. It went from 50,000 weekly rides to 100,000 just in the last six months.

The growth is compelling and the addressable market is massive

Case in point: Uber does more than 200 million rides each week. Let’s let that sink in. So if autonomous rides can capture even half that market, that would mean 100 million rides per week. That’s about 1,000 times where Waymo is today. 200 million rides a week translates to about a billion a month and over 10 billion a year. At $30 per ride, we’re talking revenues of close to $300 billion per year.

But wait… there is more to the growth story

If Waymo is already delivering over 100,000 driverless rides, how many more people might switch from driving their cars to being driven by autonomous vehicles? The shift could be massive. For each person hailing a cab, there are at least 10 others driving their own cars. Many of these drivers might reconsider once they see millions of people relaxing in the back seat, streaming Netflix, while they’re stuck behind the wheel.

In fact, early data backs this up. According to Earnest Analytics, Waymo is already retaining riders at a higher rate compared to other ride-hailing services like Uber or Lyft. People enjoy the experience of autonomous vehicles. Safety could also be another attraction. Waymo published a report last year indicating that its autonomous vehicles achieved an 85% reduction in injury-causing crashes compared to national rates for human-operated cars.

Investors will soon recognize that the $300 billion revenue figure for the current ride-hailing market has substantial growth potential – it could easily expand by 2-3x. A $1 trillion market for autonomous rides isn’t out of the question. This growth would also translate to significant revenue opportunities for automakers like Tesla (NASDAQ:TSLA), which are working on their driverless vehicle technologies. Could Tesla get a regulatory boost, see What Musk’s Gamble On Trump Means For Tesla Stock

Returns for Google stock were 65% in 2021, -39% in 2022, and 59% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

But wait aren’t so many automakers and tech players working on autonomous driving?

Yes, but not all of them are making the same progress. Waymo has a head start in the market. Its main competitor, General Motor’s backed Cruise lost its driverless permits in California after a serious accident, making Waymo the only publicly available robotaxi service in San Francisco. Uber exited its self-driving taxi program about six years ago and has partnered with Waymo to bring its services to the Uber app in some cities. While electric vehicle behemoth Tesla is seen as a leader of sorts in the self-driving space, given its large base of vehicles, it is only slowly getting into the space after the unveiling of its Robotaxi vehicle earlier this month.

Waymo has some advantages in terms of tech as well. It uses a fleet equipped with high-resolution cameras, LiDAR, and radar systems, creating a comprehensive view of its surroundings. And don’t forget Google’s got a secret weapon. It crowdsources annotated data such as CAPTCHA codes from its massive user base, using that to train its machine-learning models. That’s a big advantage in terms of understanding complex driving environments.

The best part?

These are self-driving cars – no human drivers, no unions, no employee or contractor issues, and no human cost. While there will be other expenses, such as software development and battery costs, the absence of driver wages could lead to exceptionally high margins. Margins of 50% aren’t unrealistic when you consider that driver earnings account for a substantial portion of gross fares in traditional ride-hailing models.

If Waymo can capture about one-third of the $1 trillion autonomous rides market, it could generate annual revenues of around $300 billion. With a 50% margin, that’s a neat $150 billion in profits. What’s that worth? At a 30x earnings multiple, that would imply an additional valuation of about $4.5 trillion for Alphabet. To be sure, building this sort of scale can take a good deal of time – quite different from signing up for say a Google or Netflix account. However, investors will need to look well out into the future. Think 2030 (not 2025), maybe even more. The point is not to get stuck – if you’re concerned, look even further out, say 2035! The bottom line: Alphabet is growing Waymo quickly, has the technology and competitive edge, and is addressing a potentially massive market, making this high valuation within reach.

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

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