Going driverless is the next big thing the technology sector is looking forward to. It is with childlike anticipation that the whole world is looking forward to this union of technology and automobile. A number of automakers are offering a wide array of driver-assist features such as lane changing, traffic jam assistant and others. Such features are, essentially, stepping stones to self-driving car technology.
An autonomous car is a vehicle that is capable of performing the primary functions of driver-controlled car by sensing its surrounding environment and navigating without any human involvement. Technology such as radar, lidar, GPS and computer vision help the cars accomplish this feat.
Almost all automakers are at various stages of developing self-driving cars. Although taking these cars to market will take years, it goes without saying that driverless cars have a bright future. Thus, long-term investors interested in the technology sector are advised to invest in stocks that look set to gain from this trend.
Autonomous Car: Massive Growth Prospects
Per Boston Consulting Group’s estimates, the autonomous car market will be worth $42 billion by 2025 and $77 billion by 2035. Per market research firm IHS, autonomous car sales will hit 21 million by 2035, at a CAGR of 43% between 2025 and 2035. In the United States, it is anticipated to be 4.5 million autonomous vehicles by 2035.
Per a Business Insider report, an estimated 10 million self-driving cars will hit the pitch by 2020. According to BCG, by 2035, more than 12 million fully autonomous and 18 million partially autonomous cars are expected to be sold per year globally.
The robust growth in the number of autonomous vehicles deployed in streets will surely escalate demand for sensor technology and auto components (chips, electronic circuits, algorithms) that support advanced driver assistance systems (ADAS), the basic building block for self-driving cars. This is a significant boost for technology companies.
The massive growth prospect of the self-driving car market has already lured big names like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) Intel Corporation (NASDAQ:INTC), Qualcomm, Inc. (NASDAQ:QCOM), and NVIDIA Corporation (NASDAQ:NVDA), among others. Cab-aggregators Uber and Lyft, search-engine Baidu, Microsoft, as well as automakers General Motors, Ford and Volkswagen are prominent names flocking to capitalize on this extremely lucrative opportunity.
4 Stocks to Focus
With sustained focus on developing new and advanced technologies for self-diving cars, here are a few technology companies that are sure to gain from the driverless car revolution.
Alphabet has been the primary aggressor among technology companies in the driverless car market. Alphabet, then Google, unveiled the first fully operational driverless car way back in 2010. The recently created, Waymo, primarily focuses on developing the applications and technology that drive these cars, whether for ride-sharing or personal use.
Waymo has been accelerating its push in this space predominantly with partnerships. Apart from its plans of deploying 600 vehicles from its existing partner, Fiat Chrysler Automobiles, it is working on a self-driving vehicle partner program with Lyft. Waymo is also in talks with Honda Motors to include its vehicles in its fleet. Another notable partnership is between Microsoft and Toyota to back the AI, robotics and self-driving technology of the later.
We believe that Alphabet’s expertise in data collecting, storing and monetizing makes it a formidable player in the autonomous driving market. An early breakthrough in the space will encourage investors and boost Alphabet’s share price that has gained 19.5% in the last one year as compared with the industry’s growth of 16.1%.
Alphabet currently carries a Zacks Rank #3 (Hold) and has a long-term expected earnings growth rate of 16.5%.
Intel INTC is one of the dominant players in the autonomous vehicle market post Mobileye acquisition. Recently, the company announced the formation of a consortium for building autonomous car ecosystem. (Read More: Intel Consortium to Build Autonomous Car Ecosystem)
The company announced that it will be building 100 cars to test its self-driving technology. The cars will be “level 4” vehicles, which mean they will be able to handle most driving situations on their own. These cars will be tested in the United States, Israel, and Europe
We believe that the company’s focus on the self-driving car market will help it sell more data processing chips, sensor-chips, cloud software and many more, which will ultimately boost top-line growth.
Intel has a Zacks Rank #3 (Hold). The company has long-term expected earnings growth of 8.4%.
However, the stock has underperformed the industry it belongs to over the last 12-months. The company’s shares have lost 2.8% compared with the industry’s growth of 29.3%.
NVIDIA forayed into the autonomous vehicle and automotive electronics space in 2015 with the launch of a computer vision system at the CES. There has been no looking back for the company since then and it has been continuously introducing new and more advanced technologies in the space.
Its approach is more focused on the artificial intelligence (AI) and machine learning area of the driverless market. The company’s powerful graphic processor units (GPUs) are supporting the endeavors. Also, NVIDIA’s collaborations with Honda, Tesla Motors, Audi, Volvo, Mercedes-Benz and BMW make it a formidable force in the driverless car market.
NVIDIA has a Zacks Rank #1 (Strong Buy). The company has long-term expected earnings growth of 10.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Also, the stock has outperformed the industry it belongs to over the last 12-months. The company’s shares have gained a massive 172.6% compared with the industry’s growth of 29.3%.
Perhaps the most secretive challenger, Apple, has acknowledged its interest in autonomous driving and has been investing heavily in machine learning and automation. For years, the iPhone-maker has been rumored to be working on its self-driving Project Titan and has also hired executives from Tesla Motors and other automakers.
In its latest efforts, Apple will be testing its self-driving technology with its employee ferry vehicles. The effort codenamed PAIL (Palo Alto to Infinite Loop – Apple’s office) will shuttle Apple employees to its various offices located in the Silicon Valley. Reportedly, 5K employees use the company shuttle to travel to work.
Apple has a Zacks Rank #3 (Hold). The company has long-term expected earnings growth of 11.3%. The stock delivered a positive earnings surprise in the each of the trailing four quarters, with an average beat of 3.8%.
Also, the stock has outperformed the industry it belongs to over the last 12 months. The company’s shares have gained 52.2% compared with the industry’s growth of 50.7%.
Your final option? Just purchase the diversified Technology Select Sector SPDR Fund (NYSEARCA:XLK) or a similar large cap tech index fund. After all, Apple, Google, Nvidia and Intel are all top components in this pick.
The autonomous cars space is one of the best places to be in because the technology is still at a nascent stage.
However, analysts are skeptical about self-driving cars being feasible before 2020. Also, stiff competition and stringent regulatory control will prove to be massive impediments to growth. So, the only question that remains unanswered is: Who will lead the race among these big techs and become the ultimate winner in this space?
So it is definitely a game of rush and grab.
Zacks’ 10-Minute Stock-Picking Secret (apr 5, investment ideas)
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here’s something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.