Alphabet Inc.’s self-driving car unit, Waymo, has quietly become a frontrunner in the race to commercialize autonomous vehicles, operating robotaxis across multiple major US cities and logging over 71 million driverless miles.
Yet its parent company’s stock has not caught the kind of momentum that lifted Tesla Inc.’s shares by 8.2% on Monday — despite Tesla’s robotaxi service in Austin launching with limited scale and hiccups.
While Tesla’s stock has rallied on optimism around its bold driverless future, Alphabet shares have shown little of the same investor enthusiasm.
The contrast has more to do with sentiment than substance.
Alphabet trades at a modest 16 times forward earnings, while Tesla’s valuation has ballooned to nearly 150 times — largely on future expectations around its robotaxi business, which has yet to scale.
Valuation mismatch between Tesla and Alphabet
“People are underestimating Waymo in a pretty significant way, while overestimating Tesla,” said Samuel Rines, macro strategist at WisdomTree in a Bloomberg report.
He said Alphabet’s valuation “assigns basically zero value to Waymo even though it has the best tech, it is already operating, and it has deals with OEMs,” referring to original equipment manufacturers.
Investor excitement about driverless technology stems from the market’s sheer potential.
Ride-hailing sales could exceed $325 billion annually by 2030, with robotaxis contributing as much as $20 billion, according to Bloomberg Intelligence.
Source: Bloomberg
Waymo currently offers paid driverless rides in Los Angeles, Phoenix, San Francisco, and Austin.
It plans to expand into Atlanta later this year via Uber’s platform and has also applied for a test permit in New York City.
The move sent shares of Uber Technologies Inc. and Lyft Inc. lower last week.
Yet Alphabet shares, down 13% this year, continue to underperform the broader Nasdaq 100 Index, which is up 4%.
Market focus has been skewed toward Alphabet’s antitrust challenges and AI competition rather than its autonomous driving advances.
Waymo an “underappreciated” but valuable long-term asset in Alphabet’s portfolio
Waymo now facilitates more than a quarter-million paid trips every week — five times higher than a year ago.
The growth drew attention on Alphabet’s latest earnings call, marking the first time CEO Sundar Pichai was asked about Waymo by analysts.
Andrew Choi, portfolio manager at Parnassus Investments, believes Waymo’s growing traction is underappreciated.
“There’s no comparing the two, really,” Choi said.
“One is live, scaling volume in a very impressive way, and getting people to pay. The other is still in development, and has been for years.”
Morgan Stanley analyst Brian Nowak sees Waymo as a valuable long-term asset in Alphabet’s portfolio.
Rine said while Tesla’s rich valuation depends on its robotaxi service being rapidly adopted, there’s a risk that it could take years for a lot of customers to grow comfortable using autonomous vehicles.
Alphabet is more insulated thanks to its diversified revenue from search, YouTube and Google Cloud, he said.
Tesla’s scale advantage, but long road ahead
Not everyone is discounting Tesla.
Shawn Severson, CEO of Water Tower Research, says Tesla’s massive manufacturing capacity could eventually help it scale robotaxis more rapidly even though “Waymo has the commercialization advantage today,” he said.
Still, many believe the market is large enough for both players to thrive.
Security comparison between Waymo and Robotaxi
Meanwhile, Tesla shares rose nearly 2% in premarket trading Tuesday, adding to Monday’s 8.2% surge following the robotaxi launch.
Videos on X showed excited passengers praising the rides, though some clips highlighted flaws — including minor speeding and a missed left turn.
The National Highway Traffic Safety Administration is reviewing footage of Tesla robotaxis allegedly violating traffic laws, such as crossing double-yellow lines and making unsafe lane changes.
Waymo has reported an 80% drop in injury-causing crashes — amounting to 223 fewer incidents — a safety record that has allowed it to continue operating without major regulatory hurdles.
“There’s no question that [the Tesla launch] put a run up on the scoreboard, to use the baseball analogy,” said Battle Road Research analyst Ben Rose, adding it’s “the first inning.”
Waymo has a few runs on the board, he said.
Rose estimated that Waymo’s annual revenue is approaching $260 million from completing 250,000 rides per week.
He doesn’t expect that makes Alphabet’s self-driving taxi service profitable yet.
A robo-taxi business will need more scale than that, with more taxis driving more riders.
Rose rates Tesla stock Buy and doesn’t have a price target on the shares. A Buy rating for him means he expects Tesla stock to beat the market over the coming 12 months.
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