5 Reasons to Buy Uber Technologies Stock Like There's No Tomorrow

Ride-hailing giant Uber Technologies (NYSE: UBER) has faced some questions about its future throughout the artificial intelligence (AI) boom.

Some fear that start-up autonomous ride-hailing services, such as Alphabet's Waymo and Tesla's Robotaxi, could eventually take market share from Uber.

The idea of autonomous competition caused some volatility in Uber's stock, but the company has laid out some plans to embrace autonomy as an opportunity -- not a threat. As a result, the stock has recovered and is now up by 20% over the past year.

There could be more room for Uber to surge higher. Here are five reasons to buy Uber stock like there's no tomorrow.

Image source: Getty Images.

1. The dominant market leader

Uber's brand moat is its most obvious flex. Imagine you're out with your friends and need to summon a ride home. What do you call? Most people will probably say they call an Uber. It's no coincidence -- the company has an estimated 75% of the ride-hailing market in the United States, and a global market share of about 25%.

Brands are a powerful advantage because they tend to stick in your mind. It's a big deal when a company's brand name is the word most of its customers associate with its product or service. Just like Kleenex for facial tissue, Uber's brand name carries a lot of weight.

2. Entrenched network effects

Since Uber is the leading ride-hailing company in the United States, its large user base creates a network effect that's hard to unravel. More users attract more drivers, and vice versa. That means shorter wait times for rides and better rider coverage across markets. It all flows into itself to make the business stronger.

Uber's network is also an effective on-ramp for new revenue streams. Over time, Uber has expanded from its core ride-hailing service to launch:

• Food delivery
• Grocery delivery
• Courier service for parcels
• Rental cars
• A subscription program for the most active users

It is also now advertising to its user base on its app. These all contribute to increasing Uber's trip/delivery traffic, which feeds into that network effect. In other words, Uber grows stronger as it grows larger.

3. Cash flows are surging

That also translates to Uber's financials. The company burned cash for years, but is quickly becoming a cash cow because business expenses have leveled off while revenue streams keep growing larger.

UBER Free Cash Flow data by YCharts.

Uber is now converting more than $0.17 of each revenue dollar into free cash flow. Management has begun repurchasing its shares with that cash, which drives per-share profits (and the stock price) higher as the share count shrinks over time.

4. Autonomous driving opportunities

Yes, autonomous vehicles will likely change the ride-hailing business at some point. Uber is very much aware and has placed clear bets on ways to integrate autonomy into its business.

The company recently announced a partnership with Nvidia to develop level-4 autonomous vehicle technology, the same level of autonomous capability as Google's Waymo. Uber hopes to build an autonomous fleet of 100,000 third-party vehicles by partnering with automotive companies, beginning in 2027.

From a competitive standpoint, Alphabet and Tesla already own autonomous technology and hope to eventually replace Uber's network. However, network effects aren't easy to establish or unwind once entrenched. Waymo and Tesla lack data and must train their fleets in each new market, which is a significant reason they haven't taken over the market overnight. This will take time.

Uber is in the opposite position, with an existing user network and mountains of data from already making billions of trips. Uber is currently behind Tesla and Alphabet, but it could make up ground fast if its data and user advantages allow it to expand its autonomous capabilities quickly once it's off the ground.

Only time will tell how this plays out, but it's far too early to pronounce Uber's demise due to autonomous vehicles. If anything, Uber probably has the upper hand until Waymo and Tesla expand enough to put a measurable dent in Uber's growth.

5. A compelling valuation

Lastly, Uber continues to trade at an attractive valuation despite the stock's gains over the past year. Shares currently trade at a free cash flow yield of about 4.4%. Not only is that the highest Uber has traded at since going public, it also makes Uber far less expensive than every stock in the "Magnificent Seven," a group that includes both Alphabet and Tesla.

Uber's stock price isn't keeping up with its rapidly growing cash flows. That makes it a compelling deal in a market where high-quality tech stocks are hard to find at a reasonable price these days.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.