Here's My Top Autonomous Driving Stock (Hint: It's Not Tesla)

Alphabet (GOOG/GOOGL) is highlighted as a compelling investment, demonstrating robust Q1 performance with 12% revenue growth and 49% diluted EPS increase, yet trading at a modest 19.9x trailing earnings. This valuation is argued to undervalue its Waymo autonomous driving unit, which holds a significant deployed footprint across five cities and is expanding into challenging environments like Washington D.C., offering substantial unpriced long-term growth potential despite its higher per-vehicle cost relative to competitors like Tesla.

Analysis

Alphabet (GOOGL, GOOG) is presented as an undervalued investment opportunity, primarily driven by the market's perceived failure to price in the long-term potential of its autonomous driving unit, Waymo. The company's core business demonstrates robust health, evidenced by strong Q1 results showing a 12% year-over-year revenue increase and a 49% rise in diluted earnings per share. Despite this performance, the stock trades at a modest 19.9 times trailing earnings, a valuation level described as historically low for the company. This valuation is argued to reflect only the legacy search business, effectively offering Waymo's upside for free. Waymo is positioned as the current market leader in deployed autonomous vehicle services, with operations in five major U.S. cities and planned expansions into new territories. A key strategic test is the upcoming launch in Washington, D.C., which will challenge its technology with snow and, if successful, could unlock significant northern markets. However, a critical headwind for Waymo is its high per-vehicle cost, estimated at up to $200,000, which stands in stark contrast to Tesla's more cost-effective approach, presenting a long-term competitive risk.

Key Decisions for Investors

• Investors may view Alphabet's current valuation as an attractive entry point, acquiring a strong core business with a high-growth, long-term call option on the autonomous vehicle sector via Waymo.
• It is critical to monitor Waymo's operational execution, particularly its performance in all-weather conditions during the Washington, D.C. expansion, as this is a key catalyst for future market penetration.
• Keep a close watch on the competitive landscape with Tesla, focusing on any announcements regarding Waymo's vehicle cost reduction and early market share data from cities like Austin where they directly compete.
• While the article presents a bullish thesis, the disclosure that Alphabet was not on a separate 'top 10' buy list suggests that investors should weigh this positive view against potentially differing opinions in the market.