Walmart Is Expanding Its Self-Driving Technology. Why That’s Good for the Stock. - Barron's

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After more than a year of testing, Walmart is expanding its autonomous vehicle program with its partner Gatik for deliveries between Walmart properties in the state of Arkansas. It’s the latest in a string of unconventional investments for the retail giant and successful advances in self-driving cars.

Walmart (ticker: WMT) announced Tuesday that it would expand its pilot program with Gatik’s autonomous box trucks to operate a two-mile route between a distribution center and a Walmart store in Bentonville, Ark. In its pilot program, launched last July, a safety driver accompanied the trucks. Now, with some 70,000 miles completed, the trucks will drive this route without a driver present.

Walmart also said it would test the technology in longer delivery routes and try delivering customer orders to a designated location where consumers can pick up their orders. Those tests will come next year, with a safety driver at first.

Self-driving technology has been a long time coming, and recent advances in the technology have shown promise. Tesla (TSLA) has rolled out what it calls a beta version of its internally developed FSD, short for full self-driving, software. And XPeng (XPEV) showcased its own self-driving software at an event in China in late October.

Investors are excited about the technology, as well. Two Lidar companies, Velodyne Lidar (VLDR) and Luminar Technologies (LAZR), have gone public in 2020. Lidar is laser-based radar and lidar sensors help enable computers to operate vehicles safely. Shares of those two firms combined are worth more than $12 billion. That pair is expected to generate less than $200 million in sales in 2021.

Stock in automotive parts supplier Aptiv (APTV) is up about 29% year to date, better than comparable returns of the S&P 500 and Dow Jones Industrial Average. One of Aptiv’s businesses integrates all the sensor data and technologies than enable self-driving.

While autonomous driving may not seem like it’s in Walmart’s wheelhouse at first blush, it could have key advantages for delivery purposes going forward—as well as potentially selling its technology to other companies.

Just as important, autonomous driving fits squarely within the retail giant’s recent strategy of being quick to invest in new technologies, while branching out from its core retail business.

Walmart’s bid to invest in social media app TikTok is an example of both. As Barron’snoted when the news broke, the company is looking to leverage its growing online presence while generating new streams of income, especially from faster-growth portions of its portfolio. Partial ownership could attract a younger shopper, while also diversifying its revenue stream.

That’s in line with other recent decisions Walmart has made. The company’s rollout of its subscription service Wamart+ and its recent partnership with  Shopify  (SHOP) are both moves that bring more of its business online and take aim at Amazon.com (AMZN). It has also seen its investment in Indian e-commerce firm Flipkart work out well.

Moreover, the company has been moving out of slower-growth businesses, while also expanding into both human and animal health. Some think that advertising could even be a key new driver for the stock.

Collectively, these developments show that Walmart’s strategy is to move beyond just retail, and it’s more than willing to make investments—especially in technology—that could lead to new businesses with higher growth profiles than its stores. Viewed through this lens, autonomous vehicles fit within a larger narrative of Walmart’s push to reinvent itself.

The strategy appears to be working out. Walmart stock is up 23% year to date thanks to shoppers loading up their pantries during the pandemic. Still, shares trade for 25 times estimates 2021 earnings, a 20% premium to the S&P 500 price-to-earnings ratio. Five years ago, Walmart traded for 14 times estimated forward year earnings—a discount to the S&P 500 ratio.

Walmart stock, however, doesn’t trade like Amazon yet. Amazon has traded for about 50 times estimated forward earnings for the past few years on average.

Write to Teresa Rivas at teresa.rivas@barrons.com and Al Root at allen.root@dowjones.com

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