Here's a general framework to keep in mind whenever you're hunting for extraordinary returns in public markets.

Step one: find a growing pie. Industries with a long runway, expanding fast enough that everyone in them can grow.

The autonomous vehicle (AV) market qualifies. Here is a global mega trend that’s early, fast-moving, with an enormous addressable market.

Step two: work out who actually keeps a slice of it. This is where most people stop too early, and it's an expensive mistake. Some of the fastest-growing industries in history have been miserable places to own shares. Airlines grew passenger numbers for decades and destroyed more capital than almost any industry alive. Same story for solar panels, for PC makers, for the first wave of e-commerce. The growth was real, but it passed straight through to customers as lower prices, because nobody in the industry had any way of holding onto it.

A new disruptive technology always produces winners and losers. The question investors have been asking all year is which one Uber is.

It took many years, but Uber eventually shouldered and elbowed its way into a very sweet spot: aggregating both sides of the transportation market. Supply: drivers looking to make money moving people around. Demand: people who want to get from A to B. Sit in the middle of both and you become a network that's awkward to dislodge. Why would a driver switch to an app with fewer riders, only to sit idle? Why would a rider open an app with fewer drivers, only to wait longer for a car? Uber then ran the same play in food delivery.

One of the biggest bull thesis for Uber is that it will be able to maintain it’s position as the platform to consolidate demand and supply in an AV world. Uber is spending heavily right now to make that vision come to fruition: for example, by investing $1.25 billion in Rivian to deploy up to 50,000 fully autonomous robotaxis exclusively on the Uber platform. Uber has also partnered with Lucid and Nuro, as well as with NVIDIA.

What gave even more credibility to the thesis was Uber’s partnership with Waymo. The company’s management had previously disclosed that Waymo cars on the Uber platform were actually more profitable than standalone cars on Waymo’s independent platform.

But in recent weeks, the relationship between the two companies has really deteriorated. Uber has been lobbying policymakers to enforce “hybrid networks”, arguing that any platform offering self-driving cars should have 85% of its rides operated by humans. Needless to say, if this law were to pass it would be terrible for Waymo’s fully self-driving network of vehicles. Waymo has pushed back by announcing the end of its partnership with Uber, which runs until 2028 in some cities.

This series of events has really put a spotlight back on Uber’s strategy in an increasingly competitive AV world. In cities like San Francisco, where self-driving cars are abundant, Waymo offers its own app and completely bypasses Uber’s network. Waymo is potentially the first in a long line of well-funded AV operators that will try to make a 1st party platform to compete directly with Uber.

Right now, the biggest swing factor is whether Waymo becomes the dominant AV network, or whether new AV networks come online and try to replicate Waymo’s vertical integration: a full stack including the “intelligent” driver, the fleet of vehicles, and the application layer where customers will request a vehicle. If that’s the case, Uber’s business model deteriorates from an indispensable matching layer to outsourced customer acquisition and demand smoothing.

Uber is making the bet that the industry will see the layers separate: some players making the “intelligent” driver, others making the vehicles, and all of them needing Uber as the platform to aggregate customer demand. At the end of the day, there are only a handful of businesses with Alphabet’s balance sheet depth (maybe Amazon and Tesla?). But maybe that’s all it takes to weaken Uber’s moat.

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