When people look for home run investments, they tend to focus on the lottery type - a high-risk stock with an unproven business in the hope of getting lucky and making a killing. That's great if the speculative investment works out, but you're better off heading to the nearest casino and placing all your bets on red or black.
I think it's best to swim against the current and find great businesses that the market doubts. See what Warren Buffett has invested in apple become.
Contrary to popular belief, you can get rich with established, quality companies. Today, a well-known high-growth stock is trading at an attractive valuation amid concerns about technological threats. The market appears to have become too pessimistic, creating a situation that could become bullish in the long term.
Here's what you need to know about the opportunity Uber Technologies (NYSE:UBER).
Since artificial intelligence (AI) came into focus in early 2023, technological innovation appears to have accelerated. The idea of self-driving cars is not new. Tesla and Waymo (letter), a recognized leader in the field of autonomous vehicle driving, has been working on this technology for many years. That said, AI appears to be already driving progress.
Tesla CEO Elon Musk noted at the end of 2023 that Tesla was converting approximately 300,000 lines of programming logic used for vehicle decision-making into neural networks, using artificial intelligence and machine learning to interpret the data. Tesla held a Robotaxi launch event in October 2024 and set a goal of launching fully autonomous ride-hailing services in Texas and California this year.
Waymo goes further than Tesla. The Alphabet-owned company has launched a fleet of self-driving cars in a handful of U.S. cities. It's already operating in Phoenix, San Francisco and Los Angeles, with plans to launch in Austin, Texas; Atlanta; and Miami next.
Investors worry that Uber will not be able to compete with self-driving fleet rivals that don't have to pay human drivers. Uber's cost of revenue, primarily driver compensation, will account for 60% of total revenue through three quarters of 2024, making it the company's largest expense.
The reasoning behind these concerns makes sense initially, but becomes flawed as you dig deeper.
Investors may be vastly overestimating how widespread self-driving fleets will soon become. First, the technology itself is not even close to being perfected yet. Waymo has reached SAE Level 4, qualifying it for autonomous driving in some (but not all) situations. Tesla's autonomous driving technology is still SAE Level 2, which requires a driver to be in the seat for supervision. There are also regulatory and liability issues, as well as extensive testing in every state or market in which these companies hope to do business.
Second, the market doesn’t appreciate Uber’s home field advantage. The Uber brand is synonymous with ride-hailing. It operates globally and dominates the U.S. market with a 76% share. This involves user data from millions of rides and established network effects—you can summon an Uber from virtually anywhere in minutes. There is no guarantee that anyone will wait longer to save money. Convenience is valuable to many people.
I admit that self-driving cars are likely to be the future, even if it takes a while. Fortunately, Uber had time to prepare. The company has formed numerous partnerships with self-driving car companies and recently announced that it will NVIDIA Develop autonomous driving technology. This means that one day, Uber may also no longer use human drivers.
Is each of these okay? What-if analysis Fighting Uber? Sure, but I wouldn't bet on it.
Uber is down more than 20% from its peak, but business is still booming. In the third quarter of 2024, the company's monthly active users were 161 million, a year-on-year increase of 13%. Engagement is also up; total rides are up 17%, outpacing user growth. Total revenue increased 22% year over year in the quarter.
The business has also become increasingly profitable in recent years, driving (no pun intended) faster earnings growth. Analysts estimate that Uber's revenue will grow by an average of nearly 42% per year over the long term.
Uber stock trades at a price-to-earnings ratio of just 33 due to concerns about autonomous competition. On a partial PEG ratio basis (0.8), Uber is incredibly cheap relative to how fast the business is growing.
The stock's valuation is likely to remain at current levels, with Uber's growth alone being enough to justify buying it. If Uber can allay concerns about its self-driving fleet, the stock looks set to multiply your investment over the next 5 to 10 years, making those willing to be a little greedy when others are fearful rich.
Before buying Uber Technologies stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks Investors can buy now... and Uber Technologies isn't one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when NVIDIA This list was created on April 15, 2005... If you invested $1,000 when we recommended, You will have $843,960!*
stock advisor Provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. this stock advisor Services are more than four times Return of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor returns as of January 13, 2025
Suzanne Frey is an Alphabet executive and a board member of The Motley Fool. Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet, Apple, Nvidia, Tesla and Uber Technologies. The Motley Fool has a disclosure policy.
Meet the Super Growth Stocks That Can Make You a Millionaire originally published by The Motley Fool