8. Alphabet Inc. (NASDAQ:GOOG)
Analysts’ Upside Potential as of April 22: 27.03%
One of the leading companies in the self-driving car space and Best Autonomous Driving Stocks is Alphabet Inc. (NASDAQ:GOOG), the parent company of Google. The key to self-driving automobiles is data, specifically the use of road data to teach an artificial intelligence system how to drive a car. Google has a clear advantage in this regard due to its extensive index of online information. All types of businesses utilize Google Cloud, a subsidiary, to manage autonomous car design and manufacture, train self-driving AI algorithms, and handle vehicle software updates.
The leading autonomous car startup, Waymo, has invested in Alphabet Inc. (NASDAQ:GOOG). Google has been funding Waymo’s research and development for years with its wildly successful online advertising company. Waymo is developing its “Waymo Driver” system for use as an autonomous ride-hailing service (Waymo One) and a heavy freight and delivery solution (Waymo Via).
Waymo’s autonomous vehicles are currently operating in Austin, San Francisco, Los Angeles, and Phoenix. In its service zones, Waymo One, the company’s self-driving ride-hailing service, is open twenty-four hours a day, seven days a week. As of right now, Waymo has about 700 autonomous vehicles on the road; since 2019, the fleet has traveled over 20 million miles.
Merion Road Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q1 2025 investor letter:
“The long only portfolio fell slightly over 8% during the quarter, primarily attributable to our tech-oriented holdings (GOOG, AMZN) and economically sensitive industrials (CLH, FERG). Regarding the former, there continues to be a debate as to whether or not their investments in AI will produce adequate returns. The AI race publicly began back in 2023 when Microsoft CEO Satya Nadella threw the gauntlet down stating that he hopes GOOG would “come out and show that they can dance.” In response, Alphabet Inc. (NASDAQ:GOOG) ramped their capex spend from $32bn in 2023 to almost $53bn last year, with a planned $75bn this year. So far, their pre-tax return on tangible capital has barely budged at 48% (though consensus has this falling next year). With a wide range of ubiquitous products, GOOG is as well positioned as anyone to win the war. For instance, the integration of AI overviews into search has produced strong metrics and the company is broadening its application to encompass novel query formats, including images and audio.
But will all of this investment generate an acceptable return? I don’t know. And it will be many years before we have an answer. CEO Pichai’s philosophy is that the cost of missing out on what could be a generational opportunity far outweighs the benefits of conserving its cash. This makes sense to me. Even if GOOG burns the majority of their free cash flow over the next couple years, that’s a drop in the bucket. The value in the business comes from the long tail of earnings from things like Search, Youtube, Cloud, and hopefully some of their moonshots (I’m looking at you Waymo). If AI returns disappoint, I believe GOOG will scale back.”
