Over the last year, shares of ride-hailing tech company Uber Technologies (UBER 2.33%) have gained roughly 9%. This performance is well below that of the S&P 500 and Nasdaq Composite, but I wouldn't be so quick to write Uber off.
Below, I'm going to detail what's going on with Uber stock and explain why I think shares are positioned for a healthy rebound in 2025. In fact, I think by the end of the year Uber will be more valuable than the S&P 500's top-performing stock in 2024, Palantir Technologies.
Why is Uber stock in a funk?
2024 carried a lot of ups and downs for Uber investors. Through August and September, shares of Uber had actually declined by about 7% on the year. However, the stock swiftly rebounded and soared as high as 37% by October. It really wasn't until December when shares of Uber started to crater.
The culprit behind Uber's sell-off? Concerns surrounding autonomous driving fleets.
Specifically, in early December, Alphabet's autonomous vehicle subsidiary, Waymo, announced that it is partnering with a start-up called Moove to help manage its autonomous vehicle fleets. Considering Uber is the main player in ride-hailing, investors were surely confused as to why Waymo is partnering with somebody else.
Image source: Getty Images.
Why I think these concerns are overblown
While I understand why investors may see Waymo's decision to work with Moove as disastrous for Uber, there are still a lot of factors to consider before hitting the panic button.
First, Uber is a diversified operation. While ride sharing is its largest source of revenue, the company also operates a delivery platform through assets including Drizly and Postmates -- which focus on alcohol and food delivery. On top of this, Uber has a massive global footprint -- operating in over 70 countries.
Considering adoption for autonomous vehicle fleets is still incredibly nascent, it's highly unlikely that Waymo or any other robotaxi operator is going to dethrone Uber's mobility business overnight.
Lastly, robotaxi fleets are likely going to be rolled out on a city-by-city basis over a long period of time. For this reason, Uber has enormous potential to strike partnerships with players such as Waymo or Tesla, which may see strategic benefit in working with Uber in specific urban environments.
Why Uber could be worth more than Palantir by year-end
As of Jan. 16, Palantir's market cap is right around $160 billion. In terms of valuation multiples, this translates into a price-to-sales (P/S) ratio of 62 and a price-to-earnings (P/E) ratio of 341.
By contrast, Uber only trades at a P/S of 3.4 and its P/E of 33 is hovering around all-time lows. The subtle idea at play here is that nothing has actually changed about Uber's fundamentals. Rather, the current sell-off is driven by a narrative that competition in the autonomous vehicle landscape will eat into Uber's market share in the ride-hailing space. However, despite competition from Waymo and Tesla, this idea has yet to unfold at all, let alone at any notable scale.
I think investors will come to realize that Uber is still very well positioned for long-term growth across various aspects of the mobility market. I think the stock will fall back into favor with investors and bounce back in a meaningful way in 2025.
While Palantir has proven that it is a top player in the artificial intelligence (AI) arena, investor expectations are now sky-high. This notion is underscored in the stretched valuation metrics I called out above. In my eyes, Palantir's current rate of valuation expansion is unsustainable, and the stock is due for some normalization or a pullback.
For these reasons, I think Uber will become a more valuable enterprise than Palantir by the end of this year.
