Believe it or not, there are still plenty of consumers and investors that believe autonomous driving will not come to fruition. That couldn't be further from the truth.
Technology continues to evolve faster and faster, especially when it comes to self-driving cars. Companies like Nvidia Corporation (NVDA) can now fit more power on a smaller, more energy-efficient platform. It and others can now use machine learning to exponentially increase the speed in which their autonomous systems "learn" how to drive. In the end, that makes autonomous driving much more of a reality than a fantasy.
It also makes it an eventual profit machine.
Look no further than what Alphabet Inc. (GOOGL) (GOOG) is doing with its Waymo division. The company is now delivering 400 autonomous rides per day in Phoenix and has been operating in the city for about a year. General Motors Co. (GM) , which acquired Cruise for about $1 billion after incentives in 2016, just saw the asset's valuation soar to more than $11 billion after SoftBank (SFTBY) took a near-20% stake in the company.
GM is hoping that its Cruise acquisition will help launch a fleet of autonomous driving taxis, much like Waymo is doing right now. As for the two companies, RBC analysts have now weighed in on their quickly growing opportunity.
They say that GM's Cruise could be worth $43 billion if it can get 800,000 cars into its fleet by 2030. Luckily for General Motors, it can produce that many cars without an issue. While it's a long way from $11 billion to $43 billion, it goes to show just how much value General Motors could be sitting on with the segment. For reference, GM currently sports a market cap of "just" $55 billion and remember, Cruise went from a $1 billion valuation to $11.5 billion in roughly two years.
That mark is crushed by Waymo, though. RBC analysts set a $1,500 near-term price target on Alphabet stock, representing more than 25% upside from current levels. That's on the basis that investors start to realize how much potential is tied up in Waymo.
As for how much it's worth in the long term, the team devised two scenarios. The first assumes Waymo buys its vehicles, outfits them with the necessary autonomous driving equipment and uses them as part of an autonomous taxi fleet. For this, they assign an enterprise value estimation of $119 billion.
In the second scenario, RBC assumes Waymo licenses its technology to other car companies that pay annual subscriptions. Under this scenario, they estimate $35 billion in annual operating profit on $53 billion in annual revenue by 2030. For this, they estimate an EV of $180 billion.
For reference, Alphabet as a whole is expected to generate $136 billion in revenue in 2018 and currently has a market cap of just over $800 billion. So you can see how much potential RBC believes is here.
The bottom line is simple: The opportunity in autonomous driving is pretty big. While Alphabet's opportunity may bud into a larger total enterprise value, GM's Cruise would represent a larger total relative to the company's overall valuation. Either way, we could be talking about more than $200 billion worth of value coming in the next decade or so, something investors should surely take note of.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.