The robotaxi market could become one of the most important new segments of the next decade. Business Research already projects the market could grow at a compound annual growth rate of 57% and reach $33.5 billion by 2030. Uber Technologies, Inc. (NYSE:UBER) is one of the companies well positioned to capitalize on the expected growth without having to develop autonomous-driving technology itself.
On July 24, reports emerged indicating Alphabet’s Waymo is considering ending its partnership with Uber. The robotaxi firm notified Uber that it intends to enter key markets independently, starting in 2028, when the contract permits. Early signs of deteriorating relationships emerged in June when Waymo and Uber ended their robotaxi partnership in Phoenix and Arizona.
The standoff comes as strategic interests increasingly diverge. On its part, Uber wants to be the neutral platform that aggregates robotaxis from many providers. On the other hand, Waymo wants to be a vertically integrated robotaxi company controlling the technology, fleet, and customer relationship.
While Waymo ending the partnership would be detrimental, Uber may have to compensate by scaling alternatives. The company already boasts partnerships with Zoox, Wayve + Nissan, Stellantis + Wayve, and Lucid/Nuro that could help offset the Waymo Loss.
Potential Benefits to Uber
While near-term headlines of Uber Technologies, Inc. (NYSE:UBER) losing Waymo is negative, the company also stands to reap benefits. For starters, the exit could accelerate Uber’s push toward a multi-partner robotaxi marketplace.
Uber also stands to enjoy more negotiating power as it diversifies beyond Waymo and into other companies developing autonomous vehicles. In return, it will enjoy greater leverage on revenue-sharing agreements, fleet availability pricing, and geographic exclusivity.
Key risks to Uber
While Waymo is one of Uber’s most important autonomous-vehicle partners, the strategic partnership coming to an end will result in the loss of access to a strong robotaxi operator. However, the biggest risk is Waymo becoming a key competitor and taking Uber customers by promising a better experience.
Uber’s biggest asset in robotaxis is not the cars. It is the massive rider network it has built. Losing Waymo weakens the company’s network advantage as more robotaxi partners could consider going independent.
Uber’s strategy has increasingly been to provide a network for autonomous cars aggregation. If Waymo leaves, the company could be forced to deepen ties with other providers by providing incentives, incurring integration costs, and covering insurance and liability costs, which could affect its margins.
Additionally, Uber losing Waymo could slow the company’s transition into a capital-efficient autonomous marketplace.
Valuation and Institutional Holding
Uber Technologies, Inc. (NYSE:UBER) stock has underperformed the overall market, given the 14% year-to-date sell-off. Additionally, the stock trades at a trailing price-to-earnings multiple of 17x, above the industry average of 22x, with a price-to-sales multiple of 2.9x and an EV/EBITDA multiple of 22x. In contrast, Lyft, another key player in the robotaxi business, trades at a trailing price-to-earnings multiple of 3x, and a price-to-sales multiple of 1.02x. A diversified ecosystem, global scale, and multiple growth drivers justify Uber’s premium valuation.
Uber also boasts a relatively low short interest of 2.65% on 51.84 million shares sold short, suggesting the stock is not heavily shorted. On the other hand, Lyft Inc. (NASDAQ:LYFT) has a much higher short interest of 26.25% on 89.6 million shares sold short, suggesting the stock has a meaningful bearish position.
Institutional positioning is also supportive of Uber stock. According to the Insider Monkey database, 153 hedge funds held stakes in the company as of the first quarter, an improvement from 147 in the fourth quarter and much higher than 50 hedge funds that own Lyft stock. Altimeter Capital Management and Appaloosa Management LP increased stakes in the company by 43% and 243%, respectively, even as Pershing Square cut its stake by 1%.
Bottom Line
Waymo ending its strategic partnership with Uber is a clear risk, but does not necessarily undermine its business. The company already has partnerships with multiple autonomous-vehicle developers, giving it several potential alternatives if Waymo eventually goes independent. The key question is whether these partners can achieve meaningful scale and economics.
While we acknowledge the risk and potential of UBER as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UBER and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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