A Wall Street analyst says Google has 2 different choices for its car spinoff, and one of them could make Waymo a $180 billion company

• Waymo will possess such a big lead in self-driving cars when it launches operations in Phoenix by the end of the year that analyst Mark Mahaney expects the market could start bidding up Google's stock in the near-to-medium term.
• In a report published Tuesday, Mahaney said that he sees Waymo's management choosing one of two business models, either by buying cars and creating a transport company or by licensing out its self-driving operating system.
• In the latter scenario, Mahaney predicts the payday could be big. He estimates that by 2030, Waymo's operating profit could be as high as $35 billion and the company could be worth as much as $180 billion.

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Once the self-driving car market matures in about a decade, Waymo, the subsidiary that Alphabet Inc. launched in 2016, stands to generate as much as $35 billion in operating profits, according to RBC Capital analyst Mark Mahaney.

But Alphabet, the parent company of Google, may not have to wait that long to start reaping benefits. In a report published on Tuesday, Mahaney wrote Waymo will possess such a big lead over rivals when it launches commercial operations in Phoenix later this year that investors could soon begin bidding up Alphabet shares.

"While the robo-taxi (Total Available Market) opportunity will likely be nascent in 2025, we believe that it will grow exponentially thru 2050," Mahaney wrote. "We forecast a $3.8 trillion TAM in 2050."

Alphabet has emerged as this generation's equivalent of General Electric, the 126-year stalwart company known for the diversification of its businesses. For years now, Alphabet and its flagship company Google have made forays into a multitude of disparate sectors --including entertainment (YouTube), cellphones (Android), enterprise computing (Google Cloud) and autonomous cars.

Waymo has a huge lead and two potential business models to choose from

This is part of the company's quest to find another growth story to tuck in its hip pocket for the day when Google's core business, internet search advertising, finally goes into decline. To hear Mahaney tell it, Google has found that in Waymo.

His message is unmistakable: self-driving cars represent a goldmine sometime in the future and Google has already staked a claim. If investors want to share in the wealth, they had better climb aboard now.

Certainly, a lot could still go wrong before 2030. The whole market faces possible regulatory hurdles as it proves autonomous cars are safe. Plenty of competitors, including traditional car companies as well as tech firms, such as Uber, are gearing up to challenge Google.

But at this early stage, Mahaney says there's no doubt who is in the lead. He wrote that at the recent RBC Auto Tech Conference, "multiple industry participants" said Waymo was "way ahead of the competition in autonomous."

Waymo's management has yet to reveal how they plan to make money but Mahaney believes the company has one of two options for a business model. Waymo can buy a score of cars and create its own transportation company or it can license the self-driving operating system that it has created.

In the first scenario, Mahaney estimates that Google can break even in 2025 and realize an operating profit of $20 billion by 2030. Mahaney says in this scenario, Waymo would be worth $119 billion.

In the second scenario, Mahaney sees Google licensing its technology "in the form of a recurring, yearly software subscription." Here, he sees Google generating an operating profit of $250 million by 2025 and $35 billion in operating profits in 2030. The value of the car company in this situation would be $180 billion, Mahaney wrote.

Mahaney's bullish report on Waymo and the autonomous-car sector echoes previous analyst predictions. In May, UBS analyst Eric Sheridan wrote in a note to clients that after interviewing 22 industry experts, he valued Waymo at between $25 billion and $135 billion.

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