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Morgan Stanley told investors Alphabet's autonomous driving unit Waymo could be worth $70 billion and its significant potential isn't being properly valued in the company's current stock price.
The bank reiterated its overweight rating on the internet firm's shares.
"Waymo is a potential spin-out candidate (over time) and our scenario analysis shows how Waymo could be worth $70bn+ ... adding ~12%+ to GOOGL's current EV [enterprise value]," analyst Brian Nowak wrote in a note to clients Tuesday. "We do not believe Waymo or any of the 'Other Bets' are currently being reflected in GOOGL's share price."
Nowak reaffirmed his $1,050 price target for Alphabet, representing 9 percent upside from Monday's close. Morgan Stanley's notable auto analyst who covers Tesla, Adam Jonas, was also an author of this report.
Uber is likely valued at around $50 to $70 billion. The market value for Ford, which just fired its CEO for a lack of progress with sharing and autonomous vehicles, is about $44 billion. GM's market value is currently about $50 billion.
The analyst cited Waymo's recent partnership with Lyft, which will give the company more access to important "miles-driven" data. He also laid out the case for Waymo's "potential to be a material value creator" for its Alphabet parent:
"If we assume that Waymo can grow to ~1% of global miles driven by 2030 (based on a fleet of ~3mn cars each driving ~65k miles/year) and that Waymo can generate on average ~$1.25 in revenue per mile driven, it implies a ~$70bn Waymo enterprise value. More miles/year and revenue/mile could lead to an enterprise value of ~$140bn."
Nowak noted Alphabet will likely spin out Waymo in the future due to its "valuation opportunity" and the "material regulatory and (likely) legal risk" from the autonomous vehicles business.