Intel Corporation: A Play on … Self-Driving Cars? (INTC)

Intel Corporation (INTC) has had a rough year. The company reported a mediocre first quarter in April that saw continued losses for the company’s high-revenue client computing business. That segment made up $7.5 billion of Intel’s $13.8 billion quarterly total.

Intel Stock: A Play on … Self-Driving Cars? (INTC)

Source: via Intel

While its client computing segment struggles, Intel’s focus on Internet of Things business growth continues to pay off and paves the way for the future.

Investors should pay attention to a couple of self-driving car related acquisitions that could take INTC stock to the next level.

Acquisitions Set Intel up Nicely

In May, Intel announced it acquired Itseez, a Russian company that is an expert in computer vision technology. Itseez helps self-driving cars have the “ability to see and accurately interpret surroundings” with its computer vision technology.

Itseez created an advanced driver assistance system for a Russian SUV that will enter serial production in 2017. The company’s technology includes traffic sign recognition, lane departure, pedestrian detection and front-end collision detection.

Itseez lists major companies like Toyota Motor Corp (ADR) (TM), Renesas Electronics (RNECY) (the #1 supplier microcontrollers in the world), Nvidia Corporation (NVDA), Advanced Micro Devices, Inc. (AMD), Sportsvision, and AlarmCom Hldg Inc (ALRM) as customers.

Intel said the acquisition of Itseez helps a continued move to transform from a PC company to one that powers the cloud and billions of smart connected devices. That’s good news to investors who own Intel stock.

Back in April, Intel announced the acquisition of Yogitech, another company associated with self-driving cars. Yogitech is a leader in functional safety, including the fast growing advanced driver assistance system. Intel estimates that 30% of IoT will require functional safety by 2020. Yogitech is also a partner with Intel’s recently acquired Altera on a solution to allow customers to easily implement safety designs and meet safety standards.

Both of these acquisitions now belong to Intel’s Internet of Things Group. The two acquisitions seem like very smart buys that put Intel into a nice position to capture growth in self-driving cars. Intel is positioning itself nice to capture revenue among many steps of the process to make self-driving cars possible and get them approved as a safe option once the technology is there.

Intel Making IOT/Automotive a Focus

Intel calls for the overall IoT market to be worth billions of dollars. The company said, “we think this is going to grow to 50 billion devices and trillions of dollars of economic impact.” Intel sees the IoT market hitting $151 billion by 2020. Intel estimates that the 32-bit chip market for IoT is $13 billion, which is good news for the company.

Intel sees three distinct phases to the IoT market. The phases are: 1) Make everyday objects smart, 2) Connect the unconnected and 3) the emergence of constant connectivity, so devices will need intelligence to make real-time decisions. Intel is focusing its efforts on all three phases.

Intel has been betting big on automotive even prior to the acquisitions. The company has already shipped automotive electronics to car makers like BMW and Toyota. Wind River, an acquired subsidiary of Intel, has been adding products to help automakers provide wireless updates to vehicles. Wind River also acquired Arynga, a provider of software management for the automotive market. Together, Wind River provides a CarSync Solution.

This is a great step in providing Intel the opportunity to sell more chips in the automotive market and could lead to recurring revenue. Intel and its subsidiaries will save automakers and suppliers money on recalls that can be done via a software update. Intel also has its technology already in vehicles from Hyundai (HYMLF), BMW, Nissan Motor Co Ltd (ADR) (NSANY), and Kia Motors (KIMTF) via its Intel Inside platform.

The market for self-driving cars is expected to see incredible growth soon as tests hit the road and forecasts show incredible numbers. Business Insider said we could see 10 million self-driving cars on the road by 2020. IHS Automotive raised its outlook to 21 million autonomous cars on the road by the year 2035.

Investors continue to look for ways to profit from this hot growth sector, and have bid up shares of related companies as a result, giving lofty valuations along the way.

Take a look at the valuations of two of the fastest rising autonomous car associated stocks. Shares of Mobileye NV (MBLY), a key player in driver-assistance systems, currently trade for 55 times fiscal 2016 earnings estimates and 36 times fiscal 2017 estimates on a per-share basis. The company has a market capitalization of $8.4 billion and on a forward basis, the company trades at nearly 17 times sales.

Nvidia, a maker of semiconductors for the gaming and automobile market, has also seen its shares take off. Shares of NVDA are up more than 40% in 2016 and up 140%-plus over a two-year period. The company trades at 29 times fiscal 2017 earnings per share estimates. Shares trade at 4.4 times annual revenue.

In comparison, INTC stock trades at a more reasonable 13 times current fiscal year earnings per share. Intel stock also looks more appealing when noticing the 2.6 multiple for price times sales, with the $57 billion in revenue expected for fiscal 2016.

This shouldn’t come as a huge surprise since its main client computing business is suffering declines.

However, with growth ahead in the IOT area and now acting as a play on the self-driving cars fast growth market, investors should take note here and consider investing alongside one of the biggest technology names. INTC stock shareholders are also paid a 3% dividend yield, which the company has raised almost yearly.

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.

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