Driverless cars, driverless trucks, distant? Close? All I can tell you is that if you read this morning's Morgan Stanley recommendation of Alphabet (GOOGL) because of its Waymo division, you will be thinking it is here and now.
That's because Morgan Stanley ascribes a $70 billion valuation to Waymo, a 12% boost when it gets recognized for what it is -- the best hope for driverless cars.
The proximate cause for this push? The Waymo partnership with the No. 3 Distrupter on CNBC's annual list, Lyft, because it gives the company more access to miles driven, which is the key metric supporting Waymo's case as the dominant self-driving car. Action Alerts PLUS is a holder of GOOGL stock.
The way you measure the strength of your autonomous driving initiative is to see how often the car has to be disengaged because of issues. Waymo is far ahead of every other manufacturer, and the company's numbers are in evidence right on the California Department of Motor Vehicles website. That means it can be the prototype for all car manufacturers -- and be Switzerland, if it wants to. I have been thinking that if Mark Fields, ex-CEO of Ford (F) , had hooked up with Waymo, as Fiat Chrysler (FCAU) is working with the company for minivans, he'd have kept his job.
Now I love this report, but I take issue with one element of it -- the idea that Waymo may be spun off into a separate company.
I think that would be a big mistake, because the autonomous vehicle total addressable market is so much bigger than the search market is now. The latter is way too dependent on advertising -- and advertising is considered a very cyclical business.
On the other hand, autonomous cars have several secular tailwinds:
- The shortage of drivers for growth in all goods, right now;
- The much-safer statistics of cars that are driverless;
- The market for the physically-challenged: elderly and disabled people who can't drive.
Of course Waymo is not alone. Waymo develops its own chip systems, having found that others are too expensive. I would point out that the company with the best technology is Mobileye, which was bought by Intel (INTC) . I have been to Intel's factories and they are a wonder to behold. Mobileye has not been able to scale development of its chips at a price that can be competitive with the suite that Waymo is offering, but that could change with its Intel ownership.
No matter, Alphabet has not received the respect that it deserves for this other bet. Now it is happening. As the news leaks out of the "here and now" for autonomous cars, it can only spell a stock that goes higher -- and a price-to-earnings multiple that is more befitting of a fast-growing stock than the relatively inexpensive P/E that it has now.