Physical AI is turning into one of the market's hottest themes, and two lidar names sit right at its center— China's Hesai Group HSAI and San Francisco-based Ouster OUST. Hesai builds its own ASIC chips in-house and serves a wide range of markets, from ADAS-fitted cars and robotaxis to industrial, agricultural and service robots. Ouster takes a platform approach, pairing lidar with cameras, AI compute, sensor fusion, and perception software across automotive, robotics and infrastructure.
While both operate in the same high-growth industry, their stocks have taken very different paths this year. Hesai shares have fallen about 33% year to date, whereas Ouster has gained more than 60% over the same period.
The valuation gap is equally striking, with Hesai trading at a much cheaper multiple than Ouster.
Both companies are riding real tailwinds. So which stock actually has the edge at current levels? Let's dig in.
The Case for Hesai
Rapid adoption of lidar in advanced driver assistance systems (ADAS) is the biggest driver of the company. Hesai expects lidar shipments to nearly double to 3-3.5 million units in 2026, after delivering a record 1.6 million units last year. First-quarter 2026 shipments reached 471,723 units, with both ADAS and robotics volumes more than doubling year over year. As automakers move toward Level 3 autonomous driving, vehicles are expected to use multiple lidar sensors instead of just one, increasing content per vehicle and creating a long runway for shipment and revenue growth.
At the 2026 Beijing Auto Show, Hesai's lidar was featured in 56 vehicle models across 24 automotive brands, more than any other lidar supplier. Its technology is already deployed by major automakers including Audi, BYD, Xiaomi, Li Auto and Cadillac, while multi-lidar design wins with Li Auto, Xiaomi and Changan position the company well for the next phase of autonomous driving.
International expansion is another important growth catalyst. Hesai’s strategic partnership with Mercedes-Benz for Level 3 autonomous vehicles in Europe and China bodes well. It has also entered the Japanese market through GAC Toyota.
Innovation is another catalyst. Hesai unveiled Picasso in April, the industry's first 6D full-color lidar chip, which combines RGB color with 3D depth sensing to improve perception accuracy. The company's next-generation ETX platform is expected to enter mass production in the second half of 2026, with broader adoption likely from 2027 onward. Beyond lidar, Hesai is building new businesses under its Strategic Growth Initiatives (SGI). The first product, Kosmo, combines lidar, AI software and spatial intelligence to create high-quality 3D digital environments. Management expects SGI to contribute around RMB100 million in revenues during 2026 and grow to roughly RMB500 million in 2027.
Importantly, the company is pairing strong growth with improving profitability. First-quarter revenues increased nearly 30% year over year, while the company reported its fourth consecutive quarter of GAAP profitability and sixth consecutive quarter of non-GAAP profitability.
The Case for Ouster
Ouster has evolved beyond a lidar hardware company into a broader sensing and perception platform for the fast-growing Physical AI market. Following its acquisition of StereoLabs, the company now combines lidar with cameras, AI compute, perception software, and proprietary AI models. This expands its opportunity well beyond autonomous vehicles into robotics, warehouse automation, industrial equipment, drones, smart infrastructure and humanoid robots.
The company's REV8 platform further strengthens that positioning. Shipping since May 2026, REV8 is the industry's first native color lidar, offering higher resolution, longer range, improved safety certifications, greater scalability and lower production costs than earlier generations. The platform is also compliant with the Build America, Buy America (BABA) Act, making it eligible for federally funded U.S. infrastructure projects. Early customer traction for REV8 has been encouraging, with partnerships including NVIDIA, FieldAI, Gecko Robotics, Fujifilm and ARGUS Interception. Ouster has also expanded its manufacturing partnership with Benchmark Electronics to support higher REV8 production.
To support growing demand, Ouster recently expanded its manufacturing partnership with Benchmark Electronics, giving it the capacity to produce more than 100,000 Rev8 sensors annually under a planned 10-year production program. OUST has also signed a high-volume supply agreement with AIM Intelligent Machines, further validating the commercial demand for its digital lidar technology.
Smart infrastructure has emerged as another major growth engine. It was Ouster's largest revenue contributor in the first quarter of 2026, driven by million-dollar BlueCity traffic management projects across multiple U.S. states and an expanded deployment with the Georgia Department of Transportation. BlueCity now has more than 700 contracted deployments, while the company's Gemini platform is operating at over 550 sites, providing a growing base of recurring business.
The financial picture is also improving. Ouster reported its 13th consecutive quarter of product revenue growth, with record product revenues of $49 million in the first quarter of 2026. While the company remains unprofitable, its net loss narrowed to $17.5 million. Analysts expect losses to continue shrinking over the next two years as revenues scale.
Which Stock Wins?
Both companies are well positioned to benefit from the rise of Physical AI, and both remain attractive long-term investments. Both OUST and HSAI stocks carry a Zacks Rank #2 (Buy).
However, Hesai gets the edge at current levels. It combines stronger expected earnings growth, established profitability, a stronger leadership position in automotive lidar, expanding global partnerships, and a significantly cheaper valuation. Ouster's broader platform strategy is compelling, but much of that optimism already appears reflected in the stock after its sharp rally.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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