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Morgan Stanley analyst Brian Nowak believes Alphabet's (GOOGL) self-driving car unit, Waymo, could be worth $70 billion in the near future and that among all of Alphabet's speculative ventures, it's the company's most likely candidate to be spun off into a separate company.  

In a note to clients on Tuesday, Nowak said that Waymo's new partnership with ridehailing service Lyft is an important step in Waymo's ability to "help drive the autonomous transition." Few details about the agreement were announced, but the partnership is expected to involve a pilot program in which consumers ride in vehicles using Waymo driving technology. The deal should give Waymo access to information on many more miles driven, data that's crucial for Alphabet to unlock extra value in Waymo.

Shares of Alphabet were rising 0.8% to $972.43 on Tuesday morning. 

If Waymo grows its fleet to about three million cars, each driving about 65,000 miles per year, and generates about $1.25 in revenue per mile driven, that would imply an enterprise value of about $70 billion, Nowak explained. With a $70 billion enterprise value, Waymo could add approximately 12% to Alphabet's current enterprise value, he added.

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Waymo could become so valuable that Alphabet decides to spin it off into a separate company, Nowak said, adding that as Waymo continues to ramp up its self-driving car testing, Alphabet may not want to be exposed to any potential legal or regulatory risks -- a threat that could be mitigated through some sort of spinoff. 

"At current human levels of safety, this fleet could be involved in 50 fatalities per week," Nowak noted. "One could argue that even in the event Waymo's cars are an order of magnitude safer than today's human driven cars, GOOGL may not want to test the U.S. court system for the precedent."

Over the past year, the race to commercialize self-driving cars has intensified as tech giants have poured into the market alongside automakers. The head-to-head competition has spawned intense rivalries like that between Uber and Waymo, who are currently locked in a heated legal battle over claims that a former Waymo employee stole trade secrets from the company before jumping ship and joining Uber. Meanwhile, Tesla Motors (TSLA) Ford (F) General Motors  (GM) and BMW, among others, have all launched their own autonomous car efforts. 

Morgan Stanley analyst Adam Jonas said in a recent note that as more large tech firms gear up to compete in the self-driving car space, Tesla could lose its lead int eh market. Jonas, who downgraded shares of Tesla to Equal Weight from Overweight, believes Waymo is looking to increase the size of its autonomous vehicle fleet by 600%.

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Editors' pick: Originally published May 23.