One of the themes that will continue to see growth in the next few years that I would like some exposure to is “Physical AI”.
When people think about AI right now, they think about the leading LLM tools (Claude, ChatGPT, etc). These AI tools in the form of software have exploded and grow really, really fast because they are purely digital.
But the thought of “AI” will be increasingly physical rather than merely digital as hardware distribution catches up to software.
Think autonomous cars, robots, warehouse automation, and more.
The rise of these Physical AI machines require real-world 3d sensing at scale. LiDAR (Light Detection and Ranging) is an active remote sensing technology that uses pulsed lasers to measure distances and create precise 3D, high-resolution models of the environment.
Without lidar, autonomous systems cannot “see”.
The LiDAR market is expected to grow from $3.3B to $12.8B by 2030 (31% CAGR) and I believe Ouster ($OUST) is well positioned to capitalize on this.
By integrating its lidar sensors with the recently acquired StereoLabs AI cameras and its Gemini perception software, Ouster provides an end-to-end platform that can detect, classify, and track objects in complex environments.
This technology is vital for the scaling of automated warehouse robots, defense drones, and intelligent traffic systems that require high-fidelity spatial data to operate autonomously.
Ouster’s geographic revenue mix sees the majority of revenue derived from the Americas.
This U.S.-heavy footprint is bolstered by the U.S. SAFE LiDAR Act and NDAA compliance, which are creating a "regulatory shield" against dominant Chinese competitors like Hesai.
As these foreign firms are increasingly restricted from U.S. critical infrastructure and defense markets, it will push federal, defense, and drone contracts toward NDAA-compliant American providers like Ouster.
Excluding royalties, FY2025 product revenue grew ~32% organically with Q3 up 41% YoY on zero royalty contribution, gross margin has structurally improved from 10% to 40%+ on products alone, and Q1 2026 guidance of $45–48M already beats consensus even with the royalty cliff fully baked in.
With ~$200M in cash, 0 debt, rapid revenue growth, high margins, cheap compared to peers, and in a growing theme, I have opened a position in $OUST at $23.43/share.
-Pierce
Founder, InvestorWaves.com
More InvestorWaves
Watch the InvestorWaves YouTube Channel
Did someone forward this email to you? Sign up here for our newsletter.
Note: This article does not provide investment advice. The stocks mentioned should not be taken as recommendations. Your investments are solely your decisions.