Intel Corporation (NASDAQ:INTC) stunned the technology world on Monday by agreeing to buy Mobileye NV (NYSE:MBLY) for $15.3 billion. The price — $63.54 per share of MBLY stock — represents a 50% premium over the Israeli company’s March 10 close and puts INTC in pole position to power the self-driving cars now approaching the market.
Intel originally said it would spend $250 million on self-driving cars, but in his announcement on the deal, CEO Brian Krzanich wrote that the company sees self-driving cars as a $70 billion technology opportunity by 2030. INTC had sales of about $59 billion last year.
In the press release, Intel said the two companies can provide car companies with a “cloud to car” solution at lower costs, with INTC providing the brains of the car and MBLY the vision.
Despite the happy talk, Intel stock was down 1.5% on Monday. MBLY stock, naturally, was up some 30%.
Too Early?
This is the second big autonomous car deal of the year, following completion of Samsung Electronics’ (OTCMKTS:SSNLF) $8 billion purchase of Harman International Industries. It also comes just six months after Mobileye had a very public breakup with Tesla Inc (NASDAQ:TSLA), which accused it of trying to block its own efforts to create an autonomous driving system.
But despite these big-money moves, self-driving cars are not yet a thing. Consumers are still very wary of them, and despite some great hockey stick graphs showing exponential growth, most car companies don’t expect to even offer them for several years.
It is also very unclear which industry will reap the benefits of self-driving cars. Will it be service companies like Uber? Will it be tech companies like Alphabet Inc (NASDAQ:GOOGL), which has more self-driving experience than any other company? Or could it be the auto industry itself, with Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) both positioning themselves to offer cars as a service and to dominate self-driving manufacture.
Unlike the situation with the PC industry, in other words, where Intel achieved early dominance through partnerships with International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT), this is no slam dunk for Intel, and the path forward is far from clear.
Why Intel Got In
That may be precisely why Intel has jumped into the party.
Whether 10 million self-driving cars will be on the road in 2020 or not, the market is headed in that direction, and it’s too big a market for INTC to ignore.
Only in January, Intel laid out its road map for self-driving cars, with plans to trial 40 self-driving BMWs later this year. Mobileye’s statement to employees said that they will not be moved into Intel, but that Intel’s self-driving car group will be moving to them.
The deal is expected to close by the end of this year.
Bottom Line on INTC and MBLY
There is now more uncertainty in the auto market than there has been since the first decade of the 20th century, when there were literally dozens of different car companies, and a variety of car-motor technologies, seeking market share.
Much of the battle this year is going to be fought in court, where Waymo is trying to take Uber out of the picture for alleged theft of its trade secrets.
My own view is that however tomorrow’s cars are powered, whether by gasoline or electricity, and however they become self-driving — whether through Intel, Waymo or someone else — they are still going to be cars.
That means the easy play should be to buy, not INTC stock, but car companies.
General Motors is still trading at a price-to-earnings ratio of 6, delivering a 4.1% yield covered several times by dividends. It is nearly three times bigger, by revenue, than Intel and likely to get at least three times as much revenue when the market takes off.
That’s where I would drive new money.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long GOOGL, INTC and MSFT.
