D.A. Davidson's Luria: Alphabet's other properties are being held back by uncertainty about search
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Yahoo
2 hours ago
- Yahoo
Better EV Stock: Alphabet vs. Tesla (Hint: Robotaxis Are the Key)
Key Points The future of the auto industry lies in electric vehicles and ridesharing in autonomous vehicles. After many years in service, Waymo still can't point to a timeline of profitability. Tesla also faces challenges with its robotaxi offering, but it's well positioned, provided it can demonstrate safety and efficacy. These 10 stocks could mint the next wave of millionaires › Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) isn't, strictly speaking, an electric vehicle (EV) company. However, its autonomous driving technology company, Waymo, is committed to only using EVs in its fleet. Funnily enough, it could be argued that Tesla (NASDAQ: TSLA) isn't really a pure EV company either. After all, most of its sky–high valuation is attributable to the potential of its robotaxis. However, the comparison of these two as EV companies is valid because the future of the auto industry is EVs, and ridesharing in autonomous vehicles will be a larger part of the industry in the future. But which company is better placed, and which is the better stock? Alphabet vs. Tesla It's entirely possible that Alphabet could decide to spin off Waymo, not least because it reportedly could be valued at more than $45 billion. Meanwhile, one of Tesla's biggest supporters, Cathie Wood's Ark Invest, ascribes 88% of Tesla's enterprise value (market cap plus net debt) to robotaxis in its investment case for the stock, producing an expected value of $2,600 for the stock in 2029. As I have previously discussed, the Ark targets should be taken with a pinch of salt, as its track record on Tesla hasn't been good. However, Ark's core argument is sound and points to Tesla being potentially a far more valuable stock than Waymo ever will be. Pathways to profitability The core argument is that Tesla's business model is scalable to profitability while Waymo's is far less so. The issue of Waymo's profitability arose in a recent CNBC interview with Waymo co-CEO Tekedra Mawakana, where she was asked whether Waymo is profitable. She replied, "We're proving out that it can be a profitable business." When asked when Waymo would be profitable, she replied, "not clear." It's also not clear if Alphabet/Waymo doesn't have an internal forecast for when it will hit profitability, or if Mawakana preferred not to divulge what the company considers an uncertain forecast. However, it's inconceivable that Alphabet is not internally crunching the numbers on this, and if it does decide to spin off Waymo, it's a question that needs to be answered. The point here is that a business that can't be profitable isn't worth anything, let alone $45 billion, so at some point, its management is going to have to set some timelines. Tesla and timelines Whereas investors need to hear more about timelines from Waymo, whose public self-driving ride-hailing service was launched in 2018, there's probably a need for fewer declared timelines from Tesla, or, rather, a need for more accurate ones. For example, in 2019, CEO Elon Musk famously told investors to expect a million self-driving vehicles on the road by mid-2020. In April 2022, he also stated that Tesla aspired to reach volume production of a dedicated robotaxi (Cybercab) in 2024 -- a timeline that has now been pushed back to 2026. These timeline estimates matter because plugging overly optimistic assumptions from them into valuation models can produce dramatically erroneous conclusions. Why Tesla is better positioned With all that said, Tesla has clear advantages over Waymo, provided it can demonstrate safety and reliability and achieve regulatory approvals. Its advantages include: Lower vehicle costs, with Musk aiming for a $30,000 price tag for a dedicated robotaxi, the Cybercab. Meanwhile, Wall Street analysts estimate Waymo's current vehicles cost more than $120,000. In addition, Tesla manufactures its own cars (Waymo does not), and existing Teslas can be converted into robotaxis using Tesla's as-yet-unreleased-to-the-public unsupervised full self-driving (FSD) software, giving Tesla a significant advantage in scaling the robotaxi business. Tesla's use of camera-centric technology is inherently less expensive than Waymo's combination of cameras, light detection and ranging (Lidar) lasers, and high-definition maps. Every Tesla car (robotaxi or not) on the road is effectively a data gatherer, with the data used to improve the AI that powers its AI models. As such, even though Waymo was first, Tesla has significantly more data than Waymo. Which is the better EV stock? Waymo may become profitable in the future, particularly if Lidar costs continue to drop. However, it's challenging to think that it will be a strong competitor to Tesla, provided Musk's company can master safe, unsupervised FSD using a camera-centric approach. That's a big "if" at this stage, but it becomes a smaller "if" as time goes by and Tesla expands its nascent robotaxi offering across new geographies. Tesla's next robotaxi launch is expected to be in Phoenix, as it plans to continue slowly building its robotaxi business. I think Tesla is the better EV stock when comparing Tesla and Alphabet. Should you buy stock in Tesla right now? The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $636,628!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,063,471!* Now, it's worth noting Stock Advisor's total average return is 1,041% — a market-crushing outperformance compared to 183% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 21, 2025 Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy. Better EV Stock: Alphabet vs. Tesla (Hint: Robotaxis Are the Key) was originally published by The Motley Fool Sign in to access your portfolio
CNBC
4 hours ago
- CNBC
‘This market is pricing in perfection,' warns Verdence Capital CIO as tariff deadline looms
The market may be trading around record highs, but the Verdence Capital Advisors CIO is worried trouble is lurking. Megan Horneman, who oversees $4.1 billion in assets under management, thinks there's too much complacency around the Aug. 1 U.S. trade deadline. "This market is pricing in the perfect situation," she told CNBC's "Fast Money" on Monday. In addition to tariff concerns, she lists uncertainty regarding Federal Reserve policy and overbought conditions from a technical perspective as potential issues. "Once we see that [rate cuts] might be priced off the table, coinciding with the fact that we're not quite sure what's going to happen with the tariff perspective, I think you can see a bit of a valuation correction," said Horneman, who's a former Deutsche Bank senior investment strategist. Horneman is particularly concerned that technical levels are signaling overbought conditions in growth stocks — including Big Tech. "These are things that we think might upset the rally that we're seeing here," she said. Despite her short-term caution, Horneman considers herself a long-term bull and views pullbacks as opportunities. She lists international stocks among her top plays on market weakness. "I'd warn that right now, they're expensive from a valuation perspective [but] cheap compared to the U.S.," she said. "They've been underloved for way too long, and I think you're seeing some of that rotation just begin. I think that can continue." To navigate the uncertainty, her key advice to investors right now: Make sure you're allocated appropriately. "Fast Money" trader Guy Adami also sees concerns, citing the number of retail investors driving recent market gains."Just in terms of valuation, things have gotten a tad frothy here," he said on Monday's show. The S&P 500 closed at record highs every day last week. As of Friday's close, the index is 16% over the past three months while the tech-heavy Nasdaq is up 21% over the same period. The Nasdaq is also atDisclaimer
Yahoo
4 hours ago
- Yahoo
Alphabet Posts Lower Free Cash Flow and FCF Margins - Is GOOGL Stock Overvalued?
Alphabet Inc. (GOOG, GOOGL) reported higher Q2 revenue on July 23, but lower operating cash flow and significantly reduced free cash flow (FCF). Based on its capital expenditure plans, Alphabet's FCF could decline 10% over the next 12 months (NTM). As a result, GOOGL stock may be fully valued today. Shorting out-of-the-money (OTM) put options to set a lower buy-in point may be a good play here. This article will delve into this. More News from Barchart The Saturday Spread: Leveraging Practical Math to Extract Alpha in Hidden Places Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! GOOGL closed at $193.18 on Friday, July 25. That is up from its July 23 close of $190.23, and well off its 6-month peak of $206.38 on Feb. 4. It's possible, without a huge increase in the stock's FCF multiple, GOOGL could be worth around 10% less at $174 per share. Alphabet's AI-Driven Capital Spending Plans Alphabet's Q2 revenue rose 14% YoY, and its operating income was also 14% higher. Moreover, the operating income margin stayed flat at 32% for both periods. But that is all before the company's cash flows and, more importantly, its capital expenditure (capex) activities. The table below from its Q1 and Q2 earnings releases shows that operating cash flow margins fell YoY, and its capex spending exploded. As a result, this table shows that Alphabet's FCF margin imploded to just 5.5% of sales, down from 21% last quarter and 18% over the last year. It's due to capex spending, which is now 40% of sales and 80% of operating cash flow. If this keeps up over the next year, Alphabet's valuation could falter. In fact, Alphabet's CEO, Sundar Pichai, said on the first page of the Q2 earnings release, Alphabet will spend $85 billion this year on capex, all driven by its AI-driven activities. Let's look at that. The table above shows that capex so far this year is $39.943 billion. That leaves $45.057 billion over the next 2 quarters, or $22.5 billion on average (about equal to Q2). That implies that over the next 12 months (NTM), capex will be $90 billion (i.e., $22.5 x 4). Let's use that to forecast NTM FCF. Forecasting NTM FCF Analysts project sales this year will be $393.38 billion and next year $436.94 billion. That puts its next 12 months (NTM) sales forecast at $415.16 billion. So, if we use its Q2 operating cash flow (OCF) margin of 28.8% and assume it will last over the NTM period: $415.16b x 0.288 = $119.57 NTM OCF In other words, OCF could fall from $133.7 billion over the trailing 12 months (TTM) - see the table above - to just $120 billion. That's a 10.2% decline. So, just to be conservative, and to improve the outlook, let's assume the margin stays the same (36%) as the TTM figure above: $415.15b x 0.36 = $149.6 billion OCF Next, we can deduct the $90 billion in run-rate capex spending that the CEO implied in his statement that 2025 capex will be $85 billion in 2025: $150b OCF - $90b = $60 billion FCF But that is still -10% below the $66.728 billion Alphabet generated in the TTM period (see the table above). In other words, the outlook is not good for Alphabet's FCF rising. This could dramatically affect the stock over the next year. Setting a FCF-Based Price Target for GOOGL Stock One way to value a stock using its FCF forecast is to use a FCF yield metric. This assumes that 100% of the FCF is paid out to investors. What will the dividend yield be? For example, given the market cap today of $2.341 trillion from Yahoo! Finance, its TTM FCF represents 2.85% of its market value: $66.728 billion TTM FCF / $2,341 billion mkt cap = 0.0285 This is also the same as multiplying FCF by 35x (i.e., 1/0.0285 = 35.1) So, using this FCF yield metric, and applying to the $60 billion forecast for FCF over the next 12 months: $60.00b x 35.1 = $2,106 billion est. mkt cap That is still 10% below today's market cap of $2,341 billion. In other words, GOOGL stock's price target is 10% lower than today, or $173.86: $193.18 x (1-.10) = $193.18 x 0.90 = $173.86 price target The point is that GOOGL stock may be overvalued. The only way this might turn around is if its OCF margin rises over 36% (even though it was just 28.8% in Q2) and/or the market gives the stock a higher multiple than 35x FCF. Therefore, it might make sense to set a lower buy-in price by selling short out-of-the-money (OTM) put options. That way, an investor can get paid waiting for GOOGL stock to fall. Shorting OTM Puts For example, look at the Aug. 29 expiration period. That is just over one month from now. It shows that the $175.00 strike price put option, about 9.4% lower than today's price, has a midpoint premium of $1.23 per put contract. That means a short-seller of these puts can make a yield of 0.70% (i.e. $1.23/$175.00). But note that there is just a 13% chance of this occurring (i.e., the delta ratio is -0.1294). The point is that if GOOGL stock falls to $175.00, the breakeven point for the assigned investor's account is $173.77 (i.e., $175.00-$1.23). That is just below our breakeven point for the stock $173.86 - see above). If the investor is able to repeat this over the next 3 months until the next quarterly release, the expected return is +2.1% (i.e., 0.70% x 3). But at least investors in GOOGL stock can make extra income here, shorting puts if they already own shares. The bottom line is that if GOOGL stock falters one way to play it is to sell short OTM puts every month. On the date of publication, Mark R. Hake, CFA 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. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
