By Jacob Sonenshine

Uber Technologies' stock has experienced a setback. The market is concerned about profit margins, but the picture will brighten and investors should stay the course.

The stock is up 20% since we published our pick in March, underperforming the S&P 500's 24% gain. That's because Uber has dropped from its $100 record high in October to just over $84 today.

The issue is that Uber's new investments are holding profit margins back. The company's third quarter earnings report in November revealed capital expenditures of $98 million, above analysts' expectations of $80 million. The company is making all sorts of investments related to its autonomous vehicle (AV) ambitions, including purchasing some of cars that will ultimately hit the road. The problem for Wall Street is that these investments for a business that is currently losing money means lower free cash flow and earnings.

Analysts have reduced their 2026 earnings per share forecasts as a result, by about 4% since earnings, according to FactSet. They have lifted projections for costs, causing them to reduce operating margin forecasts by 1.2 percentage points to 16.4% on sales projections of $60.4 billion.

The good news: shares reflect much of this headwind. Plus, the business has an excellent shot at success down the road.

If Uber's AV initiative ultimately reaches large enough scale, it will become profitable. The idea is for AVs to efficiently add more available cars, especially in underserved locales across the U.S. and Asia, which can in turn extend the high growth of ride-sharing. Chief financial officer Prashanth Mahendra-Rajah, who has held the position since 2023 and helped increase the company's operating margins, emphasized on the earnings call the company's history of turning scale into fatter margins.

Supporting this view: the AV business is already positioned nicely. It has launched in partnership with Alphabet's Waymo in Atlanta, Phoenix, and Austin. The key for Uber is to become the leading ride-hailing app versus Tesla's and Waymo's apps.

Another benefit to Uber is that Tesla and Alphabet don't have unlimited money to spend, believe it or not. Alphabet's capital expenditures are unlikely to rise much more from current expectations, given the market's scrutiny of the returns on its data center investments. "Furthermore, Tesla's capital expenditures totaled approximately $11 billion in 2024 and are expected to decline to around $10 billion in 2025," writes BMO analyst Brian Pitz, who believes Uber is well-positioned to grow its AV business and generate cash.

Meanwhile, Uber is forging ahead by putting its own AVs on the road. It's partnering with EV maker Lucid Group, European car maker Stellantis, and Nvidia to assist in these efforts that should add tens of thousands of AVs over the next six years.

This will cost something, but Uber is putting the pieces in place to compete and generate revenue. No one has certainty today about whether Uber's roughly $400 million of annualized capex is too low, but its third quarter free cash flow puts it on track to generate almost $9 billion annually.

Meanwhile, the existing business continues to grow. Total third quarter revenue of $13.5 billion was an increase of 20% year over year, driven by Uber Eats. Rides grew 19%, driven by continued adoption of the service throughout the globe. Although margins disappointed, they still increased because management doesn't have to increase its operating spending as quickly as revenue to garner as much demand as it did. It's also using its cash flow to repurchase shares.

That is why earnings per share can grow far faster than revenue. Indeed it's exactly what happened in the third quarter. While everyone debates what the AV business will look like in the long-term, the core business can bring earnings higher for the next couple of years.

"Ride-sharing and food delivery continue to benefit from multiyear secular...tailwinds, and we believe Uber is the best-positioned company to capitalize on these trends globally given their existing scale," writes TD Cowen analyst John Blackledge.

The stock, at about 24 times expected EPS for the coming 12 months, is barely above the S&P 500's 22.2 times, versus a premium of 3 or 4 points in many moments in 2025. For now, earnings can bring the stock higher.

Ride on.

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January 06, 2026 22:14 ET (03:14 GMT)

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