The stock of Alphabet (GOOG 0.87%) (GOOGL 0.75%) has fallen off in recent months because of tariff-related economic uncertainty. Today, it's actually the cheapest of the Magnificent Seven stocks by far, with a P/E ratio below 20.
The overriding concern with Alphabet is that generative AI could eat into its main cash cow, Google Search. However, Search has still shown double-digit growth over the past year, even with the adoption of generative AI chatbots, and any decline in Search revenue is likely to be slow.
Meanwhile, Alphabet has several other high-growth businesses under its corporate umbrella, including YouTube, the leading streaming service in the world, and Google Cloud, which saw accelerating growth last year.
What's exciting for Alphabet shareholders is that the company may also be on the verge of another huge business: Waymo, its autonomous robotaxi service.
Waymo was already operating in Phoenix, San Francisco, and Los Angeles last year. But starting last month, Waymo launched its fourth city, Austin, Texas. And according to the first month's data, the service is already a big hit -- with a little help this time from an important partner.
NASDAQ: GOOG
Key Data Points
Waymo's first month in Austin is far ahead of San Francisco's
Through its first 27 days, Waymo has already logged 80% more rides that it did in San Francisco at this point in its launch. San Francisco launched before Los Angeles, but the technology-centric city had thus far been the fastest adopter of the robotaxi service.
Image source: Yipit Data/Bloomberg.
Some may have wondered how quickly Americans outside of San Francisco would adopt the somewhat scary proposition of riding in an autonomous taxi. But given the results in Austin, it's a very promising sign for adoption across the rest of the country.
However, the adoption in Austin has clearly had a lift from a key partner Waymo hasn't used before, who is clearly helping matters.
Great news for Uber
While early adoption in Austin is good news for Waymo and Alphabet, it might even be better news for Uber (UBER 0.36%). That's because unlike Waymo's three other cities, where Waymo launched via its own app, Waymo's Austin service launched exclusively through the Uber app.
It's hard to separate out how much of the incremental demand is purely due to the Uber partnership, but it seems pretty clear Waymo is seeing a big boost in early adoption thanks to its positioning in the Uber app. According to data from research firm Yipit, Waymo rides accounted for 20% of all Uber rides in Austin during the last week of March.
That's a really big deal for Uber, as the rise of autonomous ride-hailing platforms threatens to disrupt its business over the long-term. Of note, Uber divested its autonomous driving unit in 2020, selling the division to autonomous driving company Aurora (AUR +0.67%). Given the recent rise of autonomous technology in real-world settings over the past couple of years, investors have wondered how Uber might fit into this autonomous future.
For autonomy, Uber is currently taking a dual-path partner strategy as both a demand aggregator and servicer of Waymo's autonomous fleet of electric Jaguar I-PACE vehicles.
The big question is of course what kind of revenue Uber can derive from the Waymo partnership, and whether it will be enough to supplant lost revenue from Uber's current human-driver network over time.
Based on the stronger launch of Waymo within the Uber app in Austin, it does seem like Uber's current platform is boosting adoption and revenue for Waymo. That is valuable for Waymo, as it increases utilization and therefore profitability closer to launch. However, the exact revenue share arrangement between the two companies is still not disclosed. And it's still unclear as to whether Waymo will eventually launch its own standalone app in Austin over time.
Parallels to streaming services?
An interesting parallel scenario to the Waymo/Uber arrangement is the early days of streaming. Back then, all of the traditional networks and cable channels were happy to sell their older and used content to Netflix (NFLX 0.10%) for its first-to-market streaming platform.
At the time, it seemed like a win-win, with the cable companies getting another revenue stream for its already-produced content, and Netflix getting a boost to is content depth as streaming launched.
However, over time it became apparent the cable channels had empowered Netflix to win subscribers and invest in its own higher-quality content. We all know what happened next: Netflix went on to dominate the streaming wars, while the cable channels eventually took back their own content for their own platforms in a desperate bid to catch up.
That would appear to actually put Uber in the best position today, given that it's in the "Netflix" distribution role in this situation.
But there's a key difference: Netflix had the means to eventually produce its own original content. Uber, on the other hand, might not have the means to produce its own self-driving technology. Now, as a result of the Aurora divestiture, Uber does currently own 23.5% of Aurora.
Therefore, if Uber wants to compete in autonomy long-term, I still think Aurora would eventually have to bring its offerings up to par with Waymo. Today, Aurora is still behind, testing its technology with human-monitored rides. Meanwhile, as Waymo gets stronger and gains critical mass, it may be able to eventually go direct to consumers with its own app.
Finally, the take-up of Waymo in Austin is more good news for Alphabet, who may be on the verge of adding a fourth major leg to its business, along with Search, YouTube, and Google Cloud. Given that Alphabet's stock is also much cheaper than Uber's at the moment on a valuation basis, this investor still thinks it's the clear pick of these two heavyweights today.
