When people look for a home investment, they tend to look at the lottery ticket types — a high-risk stock with an unproven business, hoping to get lucky and hit it big. It's great if a speculative investment works out, but you might be better off going to the nearest casino and betting it all on red or black.
I think it's better to go against the crowd and identify a great business that the market has doubts about. look what Warren Buffett's investment in An apple he came
Contrary to popular belief, you can get rich on established, high quality companies. Today, a well-known supercharged growth stock is trading at a compelling valuation due to concerns about technological threats. It seems that the market has become too pessimistic, creating a fat pitch that could be a a multi-bagger over the long term.
Here's what you need to know about the opportunity at Uber Technologies(NYSE: UBER).
Technological innovation seems to have accelerated since artificial intelligence (AI) emerged in early 2023. The idea of autonomous (self-driving) vehicles is not new. Tesla and Waymo (Alphabet), the perceived leaders in vehicle autonomy, have worked on the technology for years. That said, AI seems to have greased the wheels of progress.
Tesla CEO Elon Musk stated at the end of 2023 that Tesla is converting about 300,000 lines of programming logic used for vehicle decision-making into a neural network, using AI and machine learning to interpret data. Tesla unveiled Robotaxi in October 2024 and has set goals to launch a fully autonomous ride-hailing service in Texas and California this year.
Waymo is even further than Tesla. The Alphabet-owned company has launched autonomous fleets in a handful of US cities. It already operates in Phoenix, San Francisco, and Los Angeles, with plans to launch in Austin, Texas; Atlanta; and Miami next.
Investors worry that Uber won't be able to compete with autonomous fleet rivals that don't have to pay a human driver. Uber's cost of revenue (mainly driver compensation) represented 60% of total revenue through three quarters of 2024, making it the company's biggest expense by a wide margin.
The logic behind these concerns makes sense at first, but becomes flawed as you dive deeper.
Investors may be dramatically overestimating the speed of widespread autonomous fleets. First, the technology itself is nowhere near perfected yet. Waymo has achieved SAE level 4, which qualifies for autonomous driving in some (not all) situations. Tesla's self-driving technology is still SAE level 2, which requires human supervision from the driver's seat. In addition, there are regulatory and liability issues, along with extensive testing for each state or market in which these companies hope to launch.
Next, the market doesn't appreciate Uber's home field advantage. The Uber brand is synonymous with riding. It has a global footprint and dominates the US market, with a 76% share. This includes millions of rides worth of user data and an established network effect – you can call an Uber from almost anywhere in minutes. There is no guarantee that someone will wait longer for a ride to save some money. Convenience is valuable to many people.
I will admit that even if it takes time, autonomous vehicles could easily be the future. Fortunately, Uber has time to prepare. The company has created a number of partnerships with autonomous vehicle companies and recently announced that it will collaborate with them Nvidia to develop self-driving technology. That means at some point, Uber may not use human drivers either.
Could all of these what-if going against Uber? Sure, but I wouldn't bet on it.
Uber has fallen over 20% from its peak, but business is booming. In Q3 2024, the company had 161 million monthly active users, a 13% year-over-year increase. Engagement is over, too; total rides outpaced user growth with a 17% increase. Total revenue grew 22% year-on-year in the quarter.
The business has also become increasingly profitable in recent years, driving (no pun intended) faster earnings growth. Analysts estimate that Uber will grow earnings by an average of nearly 42% annually over the long term.
Because of all the fear surrounding autonomous competition, Uber stock is only trading at a price-to-earnings ratio of 33. At a fractional PEG ratio (0.8), Uber is extremely cheap given how fast the business is growing.
The stock valuation could stay where it is, and Uber's growth alone justifies its purchase. If Uber can dispel concerns about autonomous fleets, the stock looks poised to multiply your investment over the next five to 10 years, enriching those willing to be a little greedy when others scared
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Justin Pope does not have a position in any of the stocks mentioned. The Motley Fool has positions in Alphabet, Apple, Nvidia, Tesla and Uber Technologies and recommends it. The Motley Fool has a disclosure policy.
