Ark Investment Management, which was founded by prolific technology investor Cathie Wood, thinks the autonomous ride-hailing industry could generate $14 trillion in enterprise value by 2027. Tesla (TSLA +3.34%) is a leading developer of self-driving technologies, and its new Cybercab robotaxi -- which will be able to haul passengers with no human input -- could hit American roads as soon as this year.
But Tesla might not be the biggest winner of the autonomous revolution. Instead, I think Uber Technologies (UBER +0.75%) has the potential to capture a much bigger share of this new, multitrillion-dollar market. It currently operates the largest ride-hailing platform in the world, and it has all of the infrastructure in place to succeed as the shift toward autonomous driving gathers momentum.
Uber stock currently trades at a very attractive valuation relative to Tesla, so here's why it might be a great buy today, before autonomous cars go mainstream.
Image source: Getty Images.
It's all about the network
Self-driving cars could eventually be as common as regular cars, so this will be an extremely competitive industry for developers and manufacturers. However, designing the best autonomous vehicle won't be the hardest part of capturing market share in the ride-hailing business -- the real challenge will be building a network and achieving scale.
Tesla CEO Elon Musk wants to build a ride-hailing network for the Cybercab robotaxi. Owners of the company's passenger electric vehicles (EVs) will also be able to lend their cars to the network and generate income when they aren't using them. As a result, Tesla should have an ample supply of cars available to provide ride-hailing services, but can the company convince millions of people to download another smartphone app and actually use it?
This is where Uber has a sizable advantage. It doesn't plan to design its own self-driving car, but its existing ride-hailing platform already serves over 171 million users every month, and CEO Dara Khosrowshahi recently explained how it's already equipped to deal with many of the operational challenges companies like Tesla will face when building their own networks. For example, since Uber manages 12 billion trips per year, it's an expert at delicately balancing supply and demand in major cities. An underutilized autonomous car could lose significant amounts of money, so this is critical.
Moreover, Uber has all of the infrastructure in place to swiftly handle fare disputes, insurance claims, lost item returns, and even stranded vehicles. For all of those reasons, Khosrowshahi believes autonomous vehicle developers will flock to Uber's network. It will help them scale far more quickly than trying to tackle this industry on their own.
From a financial perspective, autonomous vehicles could change the game for Uber. The 17 million human drivers who operate in its network earned a whopping $72.5 billion last year, which was the single biggest component of the company's $162.7 billion in gross bookings (the total dollar amount consumers spent on the platform). By eliminating that cost, Uber can convert more of its bookings into revenue, and then profit.
NYSE: UBER
Key Data Points
Uber already has several autonomous partnerships
Uber isn't waiting around for autonomous technologies to scale. It's partnering with as many manufacturers as it can right now, even if they are still in the early stages of commercialization. It has already signed deals with over a dozen of them, including WeRide, Motional, Serve Robotics, and most notably, Alphabet's Waymo.
Waymo is completing over 200,000 paid autonomous trips every week in San Francisco, Los Angeles, Phoenix, and Austin, Texas, with expansion to Miami and Atlanta planned in the near future. Uber will be the exclusive home of Waymo in Atlanta, as it already is in Austin, which is a big step toward becoming the leading ride-hailing network in the autonomous space.
Tesla's unsupervised FSD software still hasn't received approval for use on public roads, and it might only be in California and Texas by the end of this year. Moreover, its Cybercab isn't expected to reach mass production until 2026, so the company is significantly behind the likes of Waymo.
In January, Uber also signed a unique deal with Nvidia, which is the world's largest supplier of chips and other solutions for AI development. Uber wants to harness the valuable data it collects from the billions of trips completed on its platform each year to help its autonomous partners accelerate their path to commercialization. Uber will process that data using Nvidia's DGX Cloud, which is a platform solution delivering all of the required hardware and software.
Uber will also use Nvidia's Cosmos family of foundation models, which allows developers to create expansive real-world simulations to train their autonomous software. This can speed up the training process compared to traditional methods because it reduces the need for cars to drive around in the real world to collect data.
Uber's investment in helping its partners bring their autonomous vehicles to market faster could pay substantial dividends in the future because it will help the company reduce the enormous $72.5 billion in driver costs it incurred last year.
Uber stock looks far more attractive than Tesla stock right now
Uber generated $4.56 in earnings per share (EPS) last year, which represented a whopping 424% increase from its 2023 result. It places Uber stock at a price-to-earnings (P/E) ratio of just 16.6, which is much cheaper than the broader market -- the S&P 500 trades at a P/E ratio of around 22.9 as of this writing.
But it also makes Uber stock substantially cheaper than Tesla, which trades at an eye-popping P/E ratio of 121.9. That valuation looks even more expensive when you consider the company's EPS shrank by 53% during 2024 and could decline again this year:
UBER PE Ratio data by YCharts
With all of that said, there is one caveat to Uber's incredibly cheap valuation. The company benefited from a one-time tax benefit of $5.7 billion in 2024, so without that, its EPS would have come in around $2.01, placing its P/E ratio at 37.5. Nevertheless, it would still be an absolute bargain compared to Tesla.
Considering Uber might be far better positioned to benefit from the potential $14 trillion autonomous driving boom, its stock could be a great long-term addition to any balanced portfolio at the current price.
