The U.S. economy has evolved over time. The industries that created the most value last century -- steel and automaking -- are not the ones leading the way today. The leaders now come from the technology sector.
The first public company to amass a $1 trillion valuation was Apple in 2018. Its market capitalization has since grown to over $3 trillion. Meanwhile, four other companies have now also crossed the exclusive $1 trillion mark: Microsoft, Amazon, Nvidia, and Google parent Alphabet.
There's a significant evolution happening within the tech sector itself right now (it's been integral to boosting the market cap of the companies mentioned above). It involves artificial intelligence (AI), which is powering a huge shift to automation and boosting productivity across the corporate world.
Autonomous-driving software is one of the most creative applications of AI so far, and it could also become one of the most valuable. It's an area that ride-hailing company Uber Technologies (UBER -2.39%) is exploring, and it could substantially boost its valuation in the long term.
Uber is valued at $94 billion as of this writing, but here's how its stock could soar 1,063% to catapult the company into the $1 trillion club.
Image source: Getty Images.
Uber is a leader in the mobility industry
Uber is a platform technology company with three main parts: mobility (ride-sharing), food delivery, and commercial freight. Together, they facilitated 2.3 billion trips during the second quarter of 2023 (ended June 30). Mobility led the way thanks to Uber's ride-hailing network, which is the largest in the world.
The company had 137 million monthly active customers on its platform during the second quarter, and those customers booked $33.6 billion worth of rides, food deliveries, and freight deliveries around the globe. Uber extracted $9.2 billion in revenue from those bookings in its most recent quarter, and it earned $394 million, for the first profitable quarter in the company's history.
Achieving profitability has been a challenge for Uber, because although it's a capital-light business (it doesn't own the cars or trucks in its network), it still has to pay 6 million drivers. They are the company's largest expense by far, and that's why autonomous driving technology could be so valuable.
Uber sold its in-house self-driving software project back in 2020 following a series of issues. But it reentered the space in 2022 through a 10-year deal with Motional, a joint venture between Korean automaker Hyundai and mobility technology company Aptiv. Uber will bring its market-leading platform to the table to help create the world's largest autonomous ride-hailing network.
Plus, in the second quarter, Uber announced a new multiyear deal with Alphabet's autonomous-driving subsidiary, Waymo. Its self-driving vehicles will serve in Uber's ride-sharing network starting at the end of 2023.
Autonomous driving opens the door to a multitrillion-dollar opportunity for Uber
The key to Uber extracting more revenue from its gross bookings is to reduce costs. If the company no longer needs to pay drivers, for example, it can keep more of the money it takes in from customers. Autonomous vehicles will help achieve that, and they could also result in more consumers using ride-hailing services.
Why? Because according to Cathie Wood's Ark Investment Management, autonomous vehicles could drive down the cost of ride-sharing services to just $0.25 per mile, from as much as $4 per mile today. Wood's firm believes they could replace 60% of short-haul flights because the cost of airfare would no longer be economical compared to an autonomous vehicle over the same journey.
Ark Invest expects the autonomous ride-hailing industry to scale quickly, with the potential to generate up to $4 trillion in revenue over the next five years (from practically zero today).
Uber's new partner, Motional, combines Hyundai's Ioniq 5 electric car with Aptiv's self-driving technology to create a true Level 4 autonomous vehicle, which means it can navigate and drive without any human assistance at all. Electric vehicle giant Tesla has reached a similar milestone. Therefore, the technology itself could be ready for widespread release very soon.
Self-driving could propel Uber to a $1 trillion valuation
Despite Uber's dominance in mobility, its newfound focus on profitability, and its future prospects, its stock is still incredibly cheap. Based on the company's trailing-12-month revenue of $35 billion and its current market capitalization of $94 billion, its stock trades at a price-to-sales (P/S) ratio of just 2.7.
Uber has previously traded at a P/S as high as 9, and as low as 1.5. If we assume the stock gravitates toward the midpoint of those numbers (5.25) in the long run, it implies Uber needs to generate $190 billion in annual revenue to justify a $1 trillion valuation.
Uber could get there within the next 10 years if its revenue can achieve a compound annual growth rate (CAGR) of 18.4% between now and 2033. Considering the company's revenue has a CAGR of 32% over the last five years, even with the pandemic and weak economy in the way, it's certainly capable of delivering.
But it could exceed all expectations if Ark Invest is correct in its prediction that autonomous ride-sharing will bring in $4 trillion over the next five years. Uber would only need to capture 4.8% of that market to generate $190 billion in revenue. Considering the company already has a 37% market share in the existing ride-hailing industry, it should have no trouble hitting that mark.
Uber has a great opportunity to join tech titans like Apple, Microsoft, Amazon, Alphabet, and Nvidia in the $1 trillion club within the next decade if autonomous ride-sharing lives up to expectations. And if it does, investors who buy Uber stock today could earn a whopping 1,063% gain.
