AI stocks have experienced a sharp decline in recent weeks. The Global X Artificial Intelligence & Technology ETF, for instance, is down more than 10% over the past 30 days. Despite the pullback, many AI stocks continue to trade at lofty valuations.
One AI stock, however, appears not only fairly valued, but potentially even cheap despite impressive trailing and expected growth. Many investors don’t yet associate this company with artificial intelligence. But rising AI tailwinds are exactly what make this autonomous driving stock attractive long term.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Uber Technologies is a bona fide AI stock with a cheap valuation
Most consumers regard Uber Technologies (NYSE: UBER) as a transportation company. Investors, however, should consider Uber an AI stock.
The reasoning is simple. Uber is the largest ride-hailing service in the world. The vehicles that comprise its network, however, are expected to go autonomous over the next five years. A survey of experts conducted by McKinsey & Co. concludes that “the global rollout of robo-taxis is now expected to become reality at a large scale in 2030.”
After decades of failed promises, why should investors believe that the self-driving future is finally set to arrive? There’s one key catalyst: AI. “The development of software, actually [autonomous vehicle] software, has really been accelerated based on these larger AI models,” Dara Khosrowshahi, Uber’s CEO, stressed last summer.
Research from McKinsey indicates that AI is the key catalyst for making autonomous vehicles a near-term reality.
“The automotive industry is entering a new phase in the evolution of advanced driver-assistance systems (ADAS) and autonomous driving (AD) — one increasingly defined by generative AI,” the global consultancy concludes. “Today, generative AI is accelerating the shift toward AI-native, end-to-end (E2E) architectures capable of learning driving behavior directly from massive data sets. E2E systems can adapt more effectively to unfamiliar environments, handle greater driving complexity, and improve far more quickly as they process more data.”
Image source: Getty Images.
Bears fear that autonomous vehicles will disrupt Uber’s market power. That’s a big reason Uber’s stock is down 20% this year. Shares trade at just 15 times forward earnings, with a current free cash flow yield above 7%. And yet, sales are expected to grow 11% in 2026, with another 15% in 2027.
Story Continues
Uber’s industry is being radically reshaped by AI, creating uncertainty regarding Uber’s long-term future. What’s not being fully appreciated, however, is how much Uber has positioned itself as a benefactor of this AI revolution. Already, Uber is a manufacturer-agnostic platform. You can add any legal vehicle to its platform, regardless of its make, model, or brand. Autonomous vehicles should function the same way.
More than 200 companies worldwide are looking to build autonomous vehicles, more than 100 of which are focused on the U.S., Uber’s biggest market. The biggest threats include Tesla, which plans to operate its own closed ride-hailing platform. That’s obviously a threat to Uber’s business. But the vast majority of competing autonomous vehicle brands likely won’t operate their own closed platform. In reality, most will likely focus on vehicle production, allowing consumers and fleet operators to add the vehicles to any ridesharing platform of their choosing.
Uber already controls roughly 75% of the U.S. ridesharing market. Its name is synonymous with ridesharing. It’s the first application most consumers looking to call a ride check. With legacy competitor Lyft struggling financially, Uber has a clear runway to consolidate further market share before autonomous vehicles reach mass adoption. That makes it the clear platform for boosting the utilization rate of self-driving cabs — a key metric that will drive profitability for autonomous cab operators.
AI fears have weighed on Uber’s stock price. In reality, AI is a long-term tailwind for the company. Expect continued volatility throughout the transition, but Uber shares look compelling for long-term investors, especially if the company’s valuation falls further as enthusiasm for AI stocks wanes.
Should you buy stock in Uber Technologies right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lyft and Tesla. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.
1 AI Stock I’ll Buy Hand Over Fist If the Market Crashes was originally published by The Motley Fool