- Morgan Stanley reiterates its overweight rating on Alphabet, citing the significant potential of its Waymo and 'other bets' businesses.
- The bank reaffirmed its $1,050 price target for the company, representing 9 percent upside from Monday's close.
- The firm's Waymo estimate puts the self-driving unit about on par with Uber's current private valuation and is way bigger than Ford's current public market cap.
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.