Search engine titan and cloud computing giant Alphabet (GOOGL) continues to dominate in a variety of areas.
However, one potentially major market may be about to elude it. Alphabet’s Waymo arm has been working on developing a line of self-driving cars to serve as robotic taxis.
It’s not the only dog in that hunt, though, as the company is losing ground rapidly to a string of competitors. It’s still worth being bullish on Alphabet, however, if you can afford the huge share price. (See Analysts’ Top Stocks on TipRanks)
Looking at Alphabet’s share prices over the last year so far shows the company has either climbed or plateaued. The early going in January was one such plateau, until a climb hit in late January into early February.
A second plateau then kicked in until early April. After that, Alphabet embarked on a slow climb that featured only a few small downturns. Those were quickly wiped out.
The latest news, however, is a bit of a turnaround for Alphabet. Waymo’s operations have been moving slowly for months. So slowly, in fact, that it’s allowed competitors ranging from Ford (F) to General Motors (GM) to even Tesla (TSLA) to step into the race.
Waymo’s lead in the field has allowed it better access to investor funding, especially since Waymo has actually served as a robotic taxi service. Two cities so far have seen Waymo taxis, and are using them fairly often.
However, Waymo has been seen struggling to pull interest from what it most needs: an automaker. With a car manufacturer involved, Waymo will be much better able to ramp up its operations. Without a car manufacturer, the company will be limited in its scope and thus immediately hampered by any automaker who tries to roll out the self-driving taxi.
Wall Street’s Take
Turning to Wall Street, Alphabet has a Strong Buy consensus rating. That’s based on 26 Buys and two Holds assigned in the past three months. The average Alphabet price target of $3,355.37 implies 13.7% upside potential.
Analyst price targets range from a low of $2,965 per share to a high of $3,925 per share.
Drop in the Bucket
There’s a reason Alphabet commands the high price per share that it does. It’s not just that the company has seen incredible success in its various enterprises. That’s just the icing on the cake. The point is that it has that many enterprises to work with to begin with.
Its search engine, its advertising, its cloud computing systems, all of these and more contribute to Alphabet’s expansive bottom line. Alphabet can carry on just fine without the robotic taxi market contributing.
Moreover, these competitors are some pretty serious. The field is drawing attention from legacy automakers. They have the ability to ramp up production at almost terrifying speeds. UBS recently declared Tesla the “undisputed leader” in the EV market.
Granted, Tesla’s been taking a beating recently. It was only $30 away from being in an official bear market on Monday, but it’s making a comeback. It doesn’t hurt that UBS hiked its price target from its original $725 to a new $1,000 per share mark.
Someone will likely beat Alphabet to the robotic taxi punch here. Unless Alphabet can set up a deal with a different carmaker, or start making its own cars, the production edge will always go to a company set up to make cars already.
However, the robotic taxi market is comparatively small to begin with. If Alphabet loses out on a big slice of this market, it will still have a range of other operations to handily make up the slack.
Concluding Views
Alphabet’s future in the robotic taxi market may not be great. It’s still got a head start, at least for now. Alphabet will find itself hard-pressed to compete without an automaker to back its play, however.
That likely won’t hurt Alphabet much going forward. Even if it only becomes a niche player in the robotic taxi market, Alphabet will still have several other markets to dominate.
Robotic taxi services may just be a mildly profitable side gig. That will disappoint investors who were hoping for more, but a lost opportunity is much different from actual losses.
The sheer and staggering diversity of Alphabet is what matters most here.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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