Nvidia (NASDAQ:NVDA) shocked the market last month by disclosing it had dumped all of its shares in artificial intelligence voice recognition expert SoundHound AI (NASDAQ:SOUN), Serve Robotics (NASDAQ:SERV), and Nano X Imaging (NASDAQ:NNOX).
It replaced it with a new investment in Chinese autonomous vehicle stock WeRide (NASDAQ:WRD). With WeRide scheduled to report fourth-quarter earnings on Friday, March 14, investors face a pivotal decision: buy now or wait?
Nvidia’s $25 million investment fueled a 90% surge in the stock price, a gain that has since completely vanished. Although optimism is high, WeRiude’s significant risks should temper the enthusiasm.
24/7 Wall St. Insights:
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Nvidia (NVDA) surprised everyone by buying a stake in Chinese AV leader WeRide (WRD) last month.
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The AV stock is rapidly spreading across China and Europe, but it hasn’t translated into growing sales or profits.
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Regulatory and geopolitical risks are speed bumps it needs to navigate, and it faces bigger, better-financed rivals in the technology space.
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Sitting atop the market
The AV market looks like a goldmine in the making. Valued at $1.9 trillion in 2023, according to Fortune Business Insights, it is projected to soar to $13.6 trillion by 2030, a 32% compound annual growth rate. Through AI innovations, safety enhancements, and demand for efficient transport, the AV market holds significant growth potential. For WeRide, this is a runway to scale its driverless tech across mobility and beyond.
WeRide stands out as a global AV leader. It operates in over 30 cities across nine countries, including China, the U.S., the United Arab Emirates, and Singapore, and holds a primary position in the industry.
Founded in 2017, WeRide has since deployed robotaxis, robobuses, and robovans, with recent wins like a fully driverless robobus in France indicating it is eying European expansion. It only went public last October, but as the first universal AV firm, it is quickly making inroads.
Revenue was just $55.3 million in 2023, but that was down 24% from 2022, and WeRide forecasts a further decline for the full year of 2024 with just $50.3 million in revenue expected.
Partnerships with Uber Technologies (NYSE:UBER) and Nvidia’s backing has enhanced its technological and market credibility, but it still needs to produce revenue and eventually profits.
Risk is real
WeRide’s risks are big, making buying in ahead of earnings precarious. Regulatory hurdles vary wildly. California, for example, permits testing of AVs, but restricts passengers, while China’s data security laws could tighten, which might result in its delisting as happened with Chinese ride-hailing giant Didi Global.
Technological risks are real as well. A single AV mishap could ruin trust in the WeRide One platform, especially given industry-wide scrutiny, and competition is brutal. Google’s Waymo is making 150,000 paid weekly trips that dwarf WeRide’s scale and Tesla’s (NASDAQ:TSLA) Full Self-Driving technology could displace it.
WeRide is also bleeding cash. In the third quarter, the AV stock saw just $9.8 million in revenue against $149 million in losses, with 2023’s $268 million net loss highlighting its unsustainability. And let’s not ignore rising geopolitical tensions between the U.S. and China. Trade disputes could erupt into sanctions or additional technology bans, hitting WeRide hard.
The real reason behind Nvidia’s investment
So why did Nvidia invest in WeRide? It seems to be a calculated play on opening more markets for the chipmaker’s graphics processing units (GPUs). WeRide uses Nvidia’s GPUs to power its AV fleet, aligning with Nvidia’s push to dominate AI-driven industries.
Because it owns just 1.7 million shares, WeRide is just a tiny slice of Nvidia’s $2.6 trillion empire, but it signals confidence in WeRide’s tech and its market trajectory. Nvidia likely sees WeRide as the path to penetrate into China’s booming AV market. It’s a low-risk, high-upside move for Nvidia, amplifying WeRide’s appeal, but not erasing its challenges. An argument could be made it invested in SoundHound for similar reasons, ones that never panned out.
To buy or not to buy
Should you buy WRD before earnings? The AV market’s promise and WeRide’s global foothold are tempting for growth stock investors. and Nvidia’s vote of confidence adds to its allure. Yet the risks demand investor use caution. WeRide’s financial fragility, the regulatory mazes it needs to navigate, and the competitive heat coming from bigger, better-financed rivals suggests the AV stock’s success isn’t assured.
Friday’s earnings report could be a catalyst if it beat expectations, making the Nvidia surge pale in comparison. But Wall Street isn’t expecting much, which raises the specter that WRD has a better chance of cratering, especially if losses widen.
For risk-tolerant investors, a small position ahead of earnings might pay off if WeRide serves up a revenue beat or new contracts. But for most, waiting till after the report when WeRide can offer clarity is the better play.
With a $4.2 billion valuation, WeRide has real upside potential. Yet its current cash burn and geopolitical baggage suggests patience is the better virtue. Nvidia’s bet is strategic, not a blank check. Investors should balance the market hype with the reality of the risks WeRide faces.
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