Here's My Top Autonomous Driving Stock (Hint: It's Not Tesla)

Autonomous driving has been in the news quite a bit lately, with Tesla launching its robotaxi service in Austin, Texas. While I think Tesla is a great pick in this space, there's one that I like more at the moment. That's Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Alphabet is known as the parent company of Google, but it also owns Waymo, the undisputed leader in autonomous driving right now (at least in terms of deployed footprint). Alphabet is my top autonomous driving stock, and investors can essentially acquire it for free, given Alphabet's current stock price.

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Image source: Getty Images.

Waymo is testing some tech that could open up two of the largest markets in the U.S.

Waymo is currently available in five cities: Los Angeles, Phoenix, San Francisco, Atlanta, and Austin. As the robotaxi expands its footprint in Austin, it will be an interesting study on how consumers choose one over the other. This is a battle to keep an eye on, and the winner here could be a wake-up call for the loser.

Further expansions are also planned in Miami and Washington, D.C. Washington, D.C., is probably the most intriguing location on this list, as it has one key factor in common with the other six cities: It snows. If it can conquer this tricky element to drive in, that can open up Waymo to some very lucrative markets, such as New York City and Chicago, the largest and third-largest metropolitan populations in the U.S. (Los Angeles is the second-largest).

Waymo's footprint gives it a significant lead in the autonomous driving space, but Tesla could eventually catch up due to its cost advantage. Although information about the cost of a Waymo vehicle isn't publicly available, some estimates place the cost as high as $200,000 per vehicle. That's far more expensive than a Tesla, and although Waymo can likely bring that price down, it will be some time before it costs the same as a Tesla.

This is a significant factor for Waymo, but if it can demonstrate that its safety technology is superior to Tesla's, it may have an easier path to success.

The autonomous driving battles are slated to continue for the next decade or longer, making this a long-term investment. Fortunately, Alphabet is excelling right now and comes with an incredibly cheap stock price.

Waymo's upside isn't priced into Alphabet's stock

While there has been considerable discussion about how Alphabet's legacy Google Search business will fare in the era of generative artificial intelligence (AI), the company has performed quite well overall. In Q1, Alphabet's revenue rose 12% year over year, and diluted earnings per share increased 49%. That's an impressive performance for any company, yet the stock trades for far less than most of its big-tech peers.

Alphabet's stock can be scooped up for a mere 19.9 times trailing earnings. It has seldom traded for a level this cheap, which tells me that Alphabet is being solely valued on its legacy search business, as many of its other successful business units (like Google Cloud and Waymo) weren't around the last time that Alphabet traded this cheaply.

GOOGL PE Ratio data by YCharts

As a result, I'm confident that Alphabet's stock is a great buy today. Alphabet's core business is still performing admirably and integrating generative AI technologies into the Google Search product to keep it relevant. Waymo is another exciting division within Alphabet and could emerge as a significant revenue generator for the business over the next decade.

There's significant upside in Alphabet's stock, and I think investors should consider buying shares while they're still relatively affordable.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Tesla. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy.