Companies

Today, Waymo alone is too small for Alphabet investors to care about. However, the management team is sharing more about their rapid progress, plans to expand operations, and has raised additional outside capital. I've modeled the business and found it to be surprisingly attractive. I believe Alphabet will spin out Waymo in the next 2-4 years, with a potential valuation of $350B to $850B by 2030, which could add between 12-28% to GOOG's current market cap, depending on Alphabet's ownership percentage.

The odds of Tesla successfully capitalizing on autonomy increased with the news that Trump's transition team is planning to make regulating self-driving vehicles a top priority. Tesla holds a unique position, as it can pursue autonomy through a combination of two business models: asset-light, focusing on vehicle hardware sales, or asset-heavy. I believe these strategies could significantly boost Tesla's operating profit by the end of the decade, with a wide range of potential outcomes—anywhere from a 10% to a 155% increase, depending on which model they pursue. My prediction: by 2030, autonomy will account for 40% of Tesla's operating income.

It is becoming increasingly clear that the $7,500 EV tax credit will likely end in the US next year. While this outcome has been largely anticipated since late summer, Musk's relationship with Trump left open the possibility that the incentive might be preserved. As a result, deliveries this quarter are likely to exceed expectations as demand is pulled forward. For next year, I believe the company will still meet the Street's 14% y/y growth expectation, which is below Elon’s recent projections of 20–30% growth. Either way, delivery growth is expected to accelerate from being flat in 2024 to 12% in 2025.

Apple’s September quarter results reflected stronger than expected iPhone sales and gave guidance for December that suggested top line growth will essentially be unchanged from September. In other words, Apple Intelligence will not accelerate growth in the December quarter, a reality that is disappointing to the "iPhone supercycle" camp. I believe once these features are in place, and available worldwide, the supercycle will begin, likely in the Jun-25 quarter.

Google’s stock jumped +5% on its September quarter results largely due to the evidence that AI Overviews are having a positive impact on Search revenue. This topic has been the bullseye for investors given the potential that generative AI could displace Google's bread and butter Search business long-term. Additionally, AI is benefiting Google Cloud as growth accelerated and margins improved. I believe Google remains one of the best positioned companies to benefit from AI over the next few years.

Tesla posted a surprising profit margin in the September quarter while guiding the December quarter and 2025 deliveries well ahead of expectations. Additionally, I believe Cybercab will be a measurable boost to deliveries, accounting for about 15% of deliveries by 2032. Putting these together, we're seeing signs that EV growth is returning, the most critical piece to the 3-year Tesla investment case.

On the surface, the waiting game will continue for TSLA investors as the Cybercab and Optimus are still years away. Beneath the surface, the "We, Robot" event posed a challenge for traditional automakers as Tesla showcased an innovation edge that puts an end to the "Is Tesla a tech or car company?" debate.

I’ve had a week to process the “We, Robot” event, including conversations with several industry players and am left with 4 takeaways. 1) The world needs autonomy. 2) It’s going to take longer than I thought to get there. 3) Once the Robotaxi fleet is nationwide, it could add +20% to Tesla’s operating income. 4) Tesla's biggest opportunity lies in unsupervised FSD driving more consumer sales.

Tesla's "We, Robot" event is Thursday, October 10 at 10p ET. The two key topics orbiting the event include the number of vehicles they'll announce and timing of production. I'm looking for 3 vehicles (most are expecting two) and I believe we'll only hear production timing on the Model 2, which I expect to begin late in 2025. This timing is a few months later than what Elon's comments suggested on the June earnings call. The one wild card could be the more affordable Model 2 is actually a stripped down Model 3, which would be viewed as a negative by investors.

The fact that TSLA initially dropped 6% on the September deliveries, which were essentially in line with the Street, suggests there was something more concerning in the report, possibly related to inventories. I have a different view and see the results as a win for the company given they mark a return to growth for the first time in nine months, despite multiple headwinds. As for next year's deliveries, the timing of a new model will have a measurable impact. Beyond 2025, growth should ramp to above 20%.

I believe iPhone revenue will grow at 15% in FY25, compared to the Street's estimate of 7%. For FY26, I expect 17% growth versus the Street’s 8%. The most significant factor in my estimate is my belief that 8% of the iPhone installed base will upgrade early in FY25, and 14% in FY26. However, the dark side to the supercycle is I estimate iPhone revenue will be down 5% year-over-year in both FY27 and FY28.

This note provides Deepwater’s updated timeline of EV adoption in the United States. Previously, we had estimated that by 2030 50% of new car sales in the US would be fully electric. We now believe by 2030 only 25% of new car sales will be EVs. We expect the industry to cross the 50% threshold between 2035 and 2036. As for Tesla, we're expecting total 2030 deliveries of 4.5m, compared to the Street at 3.6m (FactSet).