Alphabet's (GOOGL) Waymo, the tech giant's robotaxi subsidiary, recently began providing rides in Nashville, Tennessee. Waymo also offers service in Atlanta, Austin, Texas, Dallas, Houston, Los Angeles, Miami, Orlando, Phoenix, San Antonio, TX, and the San Francisco Bay area, according to the subsidiary's website. It has plans to expand to many other cities relatively soon, including New York, Boston, Las Vegas, London, Philadelphia, and Tokyo.
In February, Waymo was valued at $126 billion in a fundraising round, and a Forbes columnist asserted in September that the unit could eventually be worth $1 trillion. While the latter figure is attainable and may positively move the needle for GOOGL stock, it will likely take at least two or three years to reach that point.
Looking at the current picture, Alphabet reported strong fourth-quarter results and can benefit tremendously from the AI Revolution, while its valuation is reasonably attractive. But with high oil prices squeezing consumers, the tech giant's ad business, which still provides most of its revenue, could take a meaningful hit, causing GOOGL stock to fall considerably.
Because of the latter point, I rate GOOGL a “Hold” for long-term investors and a “Sell” for shorter-term investors.
About Alphabet
Alphabet has many very popular and valuable digital assets, including its Google search engine, YouTube, the Android ecosystem, Gmail, and Google Cloud. However, the firm currently generates the vast majority of its revenue from advertising.
GOOGL stock has a market capitalization of $3.8 trillion and is changing hands at a trailing price-earnings ratio of 29.55 times.
In the fourth quarter, Alphabet's consolidated revenue advanced 18% versus the same period a year earlier to $113.8 billion, while its consolidated operating income gained 16% year-over-year (YOY), coming in at $35.9 billion.
Waymo Has Tremendous Potential But Is Unlikely to Lift GOOG Anytime Soon
Given Waymo's first-mover advantage and its partnership with Uber (UBER), it could become one of a handful of dominant robotaxi providers globally. And since robotaxi firms should be able to charge meaningfully less than ride-hailing services with human drivers, robotaxis should dominate the sector. Moreover, to the extent that Elon Musk's vision of many consumers using robotaxis as their primary vehicles materializes, Waymo's valuation could even surpass $1 trillion by a large amount eventually.
But amid likely, tough competition from Amazon's (AMZN) self-driving subsidiary, Chinese firms, and potentially Tesla (TSLA), Waymo could have difficulty reaching the $1 trillion level. And its revenue is still not growing quickly in terms of the absolute gains needed to move GOOGL stock. According to one estimate, Waymo's annualized revenue as of February was $355 million, versus about $125 million as of Dec. 2024.
And unless Alphabet considers spinning off or selling the unit, Waymo's valuation, until it reaches close to $1 trillion, probably won't have much impact on the price of the stock. That's because investors (in my experience) are generally not too impressed by paper profits unless they are huge.
In light of these points, unless Alphabet takes the improbable step of spinning off or selling Waymo, the unit likely won't meaningfully lift GOOGL stock significantly in the near-to-medium term.
Reduced Consumer Spending Could Weigh on GOOGL Stock
Amid high gasoline prices, inflation is rising and the financial situations of many households are deteriorating. As a result, they may spend less on a wide variety of consumer products, causing these companies' profits to drop meaningfully. And McKinsey, the well-respected consulting firm, has stated that, amid economic turbulence, “the marketing budget is often the first to go."
So Alphabet, which in Q4 obtained $82.3 billion of revenue from advertising versus its total top line of $113.8 billion, could be hit relatively hard by high gas prices.
Alphabet Looks Poised to Get a Big Lift From AI in the Long Term
Meta (META) has agreed to buy Google's AI chips, while I wrote in a previous column that Alphabet's Gemini 3 AI model, which had more than 750 million monthly active users as of February, “will also probably boost GOOG’s financial results in the longer term.” Further, Google Cloud, which is benefiting from the proliferation of AI and has become a positive catalyst for the shares, "finished last year at an annual run rate of over $70 billion.”
The Bottom Line on GOOGL Stock
Waymo and AI can boost GOOGL stock a great deal in the long term, but high oil prices may weigh on the name in the short-to-medium term. As a result, investors with a long time horizon can hold the shares and look to buy more on large dips, but shorter-term investors should sell the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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