Waymo, Alphabet’s self-driving car division, may be a catalyst for serious valuation growth in the very near future. While Alphabet has been a good stock to buy, some analysts are saying that the near-future ambitions and huge lead on the competition that Waymo has could mean that autonomous vehicles stand to add a handsome sum to Alphabet’s bottom line and market cap. To be specific, valuation estimates based on factors like miles driven autonomously and projected revenue put the enterprise somewhere between $70 billion and $140 billion, according to analysts from Morgan Stanley. This vast potential addition to Alphabet’s market cap, if it is utilized properly and stays under Alphabet’s umbrella, stands to increase the company’s total market cap by around 10-20%. Going off of current prices, this means that Alphabet shares could climb well above the vaunted $1,000 mark, potentially coming close to $1,200 per share.
Morgan Stanely’s Brian Nowak and Adam Jonas believe that Waymo’s recent partnership with Lyft puts the firm in a position to obtain far more data than it would have otherwise, and could spell trouble for Uber. It should go without mentioning that Uber may essentially end up knocked out of the self-driving arms race thanks to its ongoing legal battle with Waymo over stolen trade secrets. Naturally, if Uber sinks, Lyft is set to pick up the slack, and if Waymo decides to put out self-driving taxis, Waymo could see serious cash flow. If that was the case, fares would likely be far lower than current fares, with no humans involved. They could even end up being free; ad-supported driverless rides are not an entirely unheard of subject, and would fit Waymo quite nicely, being a subsidiary of one of the world’s largest advertisers. Nowak and Jonas estimated roughly 3 million vehicles associated with Waymo and Lyft to be driving around 65,000 miles per year by 2030. Based on a profit figure, whether fare-based or ad-based, of $1.25 per mile, the pair came to the conclusion that such an arrangement would bring the valuation to about $70 billion.
Nowak and Jonas came up with a $1,070 target share price for Alphabet based on the aforementioned math, factoring in a negative value of $21 billion for moonshots. A wide range of factors could change that number, of course; more competition could pop up in the self-driving space, and likely will. The potential for more of Alphabet’s “Other Bets” to become profitable under the watchful eye of CFO Ruth Porat is also quite real, as is the possibility of the core Google business generating far vaster sums than currently predicted as it becomes a bigger and bigger player in the oncoming AI revolution.