Why Shares of Pony AI Stock Were Up More Than 100% Last Month

Shares of Pony AI (NASDAQ: PONY) soared 112% in May, according to data from S&P Global Market Intelligence. The upstart is trying to bring self-driving and autonomous vehicle technology to the masses, with a focus on the Chinese market. It has a market cap of $4.67 billion but minimal sales and huge operating losses. However, investors are betting big on the potential future for this self-driving disrupter as it signs many partnerships with companies like Uber.

Here's why Pony AI stock was flying high in May.

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Betting on autonomous vehicles in China and around the world

Pony AI is developing autonomous vehicle technology to be deployed on robotaxis, trucks, and everyday owned vehicles. It is focused on large cities in China, such as Shenzhen and Beijing. Shares soared last month because of partnership announcements with Uber and Tencent Holdings. Uber is now a strategic partner with Pony AI and hopes to deploy the technology for ridesharing in a Middle East market shortly. The Tencent partnership is with Tencent Cloud.

In the early stages of its business model, Pony AI generated just $14 million in revenue last quarter and a measly $2.3 million in gross profit. On this revenue, it had a $56 million operating loss due to the heavy spending it is implementing on research and development costs. Building self-driving technology is not cheap. The company does have over $500 million in cash on the balance sheet, but that money will run out quickly at its current burn rate.

Image source: Getty Images.

Should you buy Pony AI stock?

Betting on Pony AI at a market cap of $4.67 billion does not seem wise. It is barely generating any sales and is working in a wildly difficult market in self-driving technology. Plus, it operates in China, an opaque market for Western investors. This adds up to a ton of risks for the stock. Even if the company keeps scaling with partnerships, it may be years before its revenue and earnings align with what a $4.67 billion market cap demands.

For investors interested in self-driving, look at Waymo, a subsidiary of Alphabet. The service is now doing over 250,000 paid weekly trips, which dwarfs anything Pony AI has been able to achieve. This is not to say that Pony AI's technology does not work -- and it does serve different markets -- just that you are betting on a start-up in a field crowded with huge technology competitors. This feels like a risk not worth taking vs. the stock's current valuation figures, meaning investors should stay away from buying Pony AI stock right now.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Tencent, and Uber Technologies. The Motley Fool has a disclosure policy.