Lidar And Physical AI Will Transform Industrial Automation Worldwide

Key Takeaways

• Expansion into industrial, infrastructure, and government markets, supported by innovative products and exclusive partnerships, is driving stronger revenue growth and diversified earnings.
  
• Proprietary AI software and edge analytics support higher margins, recurring revenue, and defensible market position through differentiated, software-attached offerings.
  
• Heavy reliance on a small set of customers and long adoption cycles, plus rising costs and market competition, make Ouster's path to sustainable profitability highly uncertain.

Catalysts

Provides lidar sensors for the automotive, industrial, robotics, and smart infrastructure industries in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa.

• Strong adoption of Ouster's lidar and Physical AI solutions in industrial automation, smart infrastructure, and logistics-fueled by commercial-scale deployments and high-profile contracts (e.g., FIFA World Cup, DoD certifications)-positions the company to expand its addressable market and sustain robust top-line revenue growth as these long-cycle trends accelerate globally.
  
• Extensive product innovation, including next-generation L4 and Chronos silicon enabling new solid-state lidar (DF line), is set to double Ouster's current total addressable market and launch a new product cycle, supporting higher shipment volumes and improving future gross margins through lower production costs and expanded use cases.
  
• "Land and expand" strategy evidenced by successful pilots converting into global multi-site rollouts with major customers indicates a growing base of recurring and production-level orders, which should drive revenue visibility, stability, and operating leverage as customer transitions from prototypes to scaled production quicken.
  
• Strategic expansion into government, defense, and critical infrastructure via exclusive certifications (Blue UAS/DoD) and direct partnerships taps into secular increases in safety requirements and federal funding for automation and security, bolstering future revenue streams and supporting higher-quality, geographically diverse earnings.
  
• Heavy investments in proprietary AI-driven software (Gemini, BlueCity) and edge analytics create differentiated, software-attached offerings that are both higher-margin and more defensible, supporting margin expansion and an ongoing shift to recurring revenue in the long term.

Ouster Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ouster's revenue will grow by 38.7% annually over the next 3 years.
• Analysts are not forecasting that Ouster will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ouster's profit margin will increase from -73.1% to the average US Electronic industry of 9.0% in 3 years.
• If Ouster's profit margin were to converge on the industry average, you could expect earnings to reach $30.1 million (and earnings per share of $0.43) by about August 2028, up from $-92.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 103.0x on those 2028 earnings, up from -22.1x today. This future PE is greater than the current PE for the US Electronic industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Ouster Future Earnings Per Share Growth

Risks

• Ouster's revenue growth is dependent on successfully transitioning customer prototypes to production, but with only a small fraction (~10%) of their sizable customer base in production and the rest still evaluating, there is risk of delayed or lower-than-expected scaling, impacting long-term revenue growth and cash flow stability.
  
• Despite boasting high gross margins this quarter, operating expenses rose 24% due primarily to increased stock-based compensation and litigation costs, and persistent high R&D and legal expenses alongside uncertain timelines for broader commercialization could pressure net margins and determine whether the company sustainably reaches profitability.
  
• The company relies on single large customers for substantial volume orders and conversion from pilots, and ongoing customer concentration as well as slow, lengthy adoption cycles across core verticals (industrial, automotive, infrastructure) heighten the risk of volatile or declining revenue if key customers defer or reduce purchases.
  
• Ouster's efforts to lower costs and drop pricing to enter new, high-volume but price-sensitive markets (like emerging robotics or consumer ADAS) could invite increased competition, margins compression, and potential commoditization, especially as alternative sensor technologies (cameras, radar, competing lidars) advance rapidly and further pressure long-term gross margins and earnings power.
  
• Macroeconomic and geopolitical uncertainties-including potential tariffs, supply chain shifts, and dependency on government/defense spending cycles-pose ongoing risks to margins and revenue predictability, especially if federal or international funding priorities shift, automation/infrastructure projects slow, or regulatory regimes tighten manufacturing and environmental requirements.

Valuation

• The analysts have a consensus price target of $35.0 for Ouster based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $335.6 million, earnings will come to $30.1 million, and it would be trading on a PE ratio of 103.0x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $35.08, the analyst price target of $35.0 is 0.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.