Baidu Teams With Uber and Lyft on Robotaxis—Stock Upside Ahead?
There is a new wave of disruption in the automotive sector, with the advancements of artificial intelligence and its economies of scale allowing many industries to tap into the wonders of technology. Competition will now get fiercer than ever before.
This is where investors who can get in early on these themes will enjoy an upward ride for the rest of the year.
With this in mind, when it comes to the specifics of the automotive space, the autonomous driving boom (or robotaxis) should be the main focus. While a couple of companies in the United States are already testing their success in this manner, one Asian giant is ready to start expanding outside of China and into Europe over the next couple of years.
That company is Baidu Inc. (NASDAQ: BIDU), which can be seen as China’s version of Alphabet Inc. (NASDAQ: GOOGL) because it controls a large part of the search engine market and is now expanding into robotaxis, much like Google’s Waymo.
However, this expansion means Baidu will partner with ridesharing platforms Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (NASDAQ: LYFT) to make this happen, creating an opportunity for investors today.
2 Ways to Play This Theme
Most investors are reluctant to invest their capital in overseas stocks, particularly in China, where trust has declined over the past couple of years due to geopolitical tensions between Asia’s powerhouse and the United States. However, the fact that these American companies are now willing to partner up with Baidu should be a good initial sign.
That presents the first angle investors can take in this new robotaxi theme: investing directly into Baidu stock. Baidu stock offers a steep discount in the technology space compared to its American counterparts, especially as it trades at 78% of its 52-week highs, giving investors enough of a gap to be filled on the upside.
Knowing that this discount is present in Baidu stock, some Wall Street analysts decided to give their own opinion about the stock and its future potential. While the consensus is set for a Hold rating valuing Baidu stock at $105.1 per share, Citigroup analyst Alicia Yap sees Baidu as a Buy with a $140 per share price tag.
Yap’s view implies that Baidu stock could rally 60% from its current price, effectively closing the gap to its 52-week high. However, this view does not at all factor in the robotaxi business expansion into European nations and how the market could seek to value this business in the future.
That is where the real upside may be found in this Chinese blue-chip name; however, for those still having a hard time believing in the China story, there are other ways to play this theme through Uber and Lyft.
For a Smooth Ride: Uber Delivers
Having a presence across Europe will help Uber in this transition. It will facilitate a smoother process for technology implementation and consumer adoption, given that consumers already trust the Uber brand but may not be familiar with Baidu’s robotaxis.
In this sense, investors can see Uber as the less volatile way to gain exposure to this theme.
The company has already landed a similar partnership within the United States with electric vehicle maker Lucid Group Inc. (NASDAQ: LCID) in its own rollout of autonomous robotaxis.
With this in mind, the real successful case study is found in Uber and its future expansion into the American and European robotaxi markets.
This could explain why those from the Vanguard Group decided to buy 1.6% more of the stock for their balance sheets, now holding $17.7 billion worth of Uber stock (or 9% of the entire company).
Lyft: High-Risk, High-Reward Play on Robotaxis and EU Expansion
Now, investors with a higher risk appetite can look to Lyft’s role in this entire situation. It has yet to land its first robotaxi collaboration in the United States, and its European presence has only just begun.
After acquiring German rideshare platform FreeNow, Lyft’s operational capability is still in the early stages in Europe.
However, that doesn’t mean the company can’t make a splash the way Uber is doing, after all, there must be a reason why Baidu (being such a giant) chose to go with both Uber and Lyft in the first place.
Suppose investors believe Lyft can deliver on the expansion across Europe and also land an American robotaxi partnership. In that case, this is where the real upside lies.
This is also why the entire market is willing to pay a 57.8x price-to-earnings (P/E) ratio for the stock today, a steep premium compared to the 34.4x average P/E for internet services stocks. Smart investors know that markets always have a good reason to overpay for some stocks, and Lyft is justifying it with this story today.
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