[Editor’s note: “7 Autonomous Vehicle Stocks to Drive You to the Future” was previously published in October 2019. It has since been updated to include the most relevant information available.]
The technology sector is hardly worried about the persistent slowdown in smartphone and computer demand. Even though these sectors are mature, the need for more storage, computing power, and connectivity among all devices will still increase.
Meanwhile, the ever-increasing computing power in automobiles gives technology companies newfound growth opportunities. As automobiles add more features powered by technology and as autonomous capabilities reach their potential, investors cannot ignore this trend.
Advanced driver-assistance systems (or ADAS) technology employs such solutions as AI-based applications, active driver monitoring, and blind-spot detection. As the low latency 5G rolls out, these vehicles may connect to the cloud to call on intelligent features or to run analytics.
For the investor, finding stocks that will benefit from the surge in ADAS requires balance. Some stocks are priced with high P/E multiples in anticipation of the explosive growth ahead. But if automobile manufacturers are on-track to offer ADAS and governments allow them on the street, these suppliers will enjoy strong revenue growth.
In no particular order, here are seven autonomous vehicle stocks to hold to drive you to the future.
Ambarella (NASDAQ:AMBA) enjoyed expanding sales in both the professional and consumer markets for IP security cameras. Designing its CVflow SoCs in the next generation of AI cameras is paying off. But its bigger ambitions are in the automotive market.
The company is seeing an increased interest in its computer vision SoCs for commercial vehicles. Ambarella’s CVflow solution enables vehicles to have both active driver monitoring and blind-spot detection. Multiple providers in Asia and the U.S. selected its CVflow solution in the second quarter.
Ambarella, which is on the mend after a Q4 miss, expects to announce 2020 Q1 earnings in March.
The automotive segment will offset the volatility in consumer electronics. As the company expects a decline in the percentage of consumer electronics revenue in the next two to three years, automotive will fill that void.
Getting CVs in automotive is still a longer-term story, so investors interested in holding AMBA stock should have a long-term time horizon. So, getting traction for its CVs first in the recorder business will follow with the chip’s adoption in the cabin monitor, drive monitor, and e-mirror space.
On the risk side, Hangzhou Hikvision, a video surveillance product supplier, getting blacklisted by the Trump administration on Oct. 7 could cause Ambarella to lower its near-term revenue forecast. Dahua, its second-biggest customer, is also on the list. This setback pulled the stock lower and creates an entry point for investors who missed the last rally.
Intel’s (NASDAQ:INTC) Mobileye broke ground at the Jerusalem plant and once the facility is completed, will have 50,000 square meters. Even though it won’t be ready until 2022, Intel is already enjoying growth in the autonomous driving market.
Last year, the combined IoTG and Mobileye business grew 22% year-on-year. Mobileye’s revenue and operating margin rose 16% and 20%, respectively. Penetration in autonomous driving lifted the unit’s results in the second quarter. The strong results offset weakness in Intel’s core businesses. And when its memory business revenue fell 13% due to oversupply of NAND, the company needed continued market share growth in autonomous driving to keep investors happy.
Since Mobileye was acquired in 2017, the business grew by over 30% CAGR. The unit continues to build its market leadership. This year, it had 20 new design wins. It touts Nissan ProPILOT 2.0 and NIO’s (NASDAQ:NIO) pilot vehicles starting vehicle productions with Intel’s Mobileye base L2+ systems. This gives hands-free assisted driving technology. The company will continue growing revenue as it progresses in Level four and Level five autonomy.
Mobileye’s cloud of data is impressive. It processed 1.5 million kilometers of cloud data sent from BMW and mapped 94% of the German autobahn and motorway network. This valuable data gives Intel an edge in the ADAS space. As accurate map data becomes highly sought across multiple sectors, the company will find a way to monetize this information.
General Motors (GM)
GM (NYSE:GM) investors are still weighing on the impact the UAW contract will have on results. GM conceded to investing $7.7 billion in U.S. factories. This will save or create 9,000 jobs.
Wages will rise 3% in two years and workers get a 4% bonus in the two following years. As such, GM’s positioning in self-driving and electric cars become strategically more important to sustain profits.
GM’s Cruise Automation earned another $1.5 billion in investments in May. Last year in May, the self-driving division announced a $2.25 billion investment from Softbank.
The car manufacturer wants to get ahead of the competition in developing robot cars. But in July, GM Cruise Automation delayed its robotaxi service. It offered no timeline on how much longer customers will have to wait. Its CEO said the unit needs more test miles for driverless development vehicles. And it will ramp up testing and validation throughout the rest of the year.
With Cruise having investments from institutional investors, such as Softbank, Honda, and T. Rowe Price, it has plenty of cash on hand to fund research and development.
Current Cadillac owners will have another 70,000 miles of compatible road supporting hands-free driver assistance technology. Its new digital vehicle platform will “integrate our electric propulsion systems, cybersecurity protection, advanced Active Safety systems; and Super Cruise technology.”
NXP Semiconductors (NXPI)
NXP Semiconductors (NASDAQ:NXPI) is focused on radar solutions for level 2 and level 3 ADAS vehicles. Initial features will facilitate automatic emergency braking. As new cases emerge, such as adaptive cruise control, lane change assistance, cross-traffic alerts, and blind-spot detection, auto manufacturers will lean on NXP for such solutions.
Last year, radar accounted for 10% of the company’s auto revenues. As the number one supplier for complete radar subsystems, having more customer orders will lead to the company having a solid 20% of the overall radar market.
NXP’s secure UWB fine ranging chipset gives secure and real-time ranging technology. It allows for the coexistence with existing radio technologies. Applications will have the ability to process contextual information. This includes the UWB anchor position, its movements, and the distance to other devices. Its accuracy is incredible, having precision within just a few centimeters.
Even though car production, especially in China and Europe, is trending lower, ADAS, and radar, in particular, is offsetting that decline. In the third quarter, NXP expects automotive will be up in the low-single digits sequentially. NXPI stock rallied in anticipation of management guiding on a stronger second-half performance compared to the first half. At 15.4 times P/E, the stock is inexpensive relative to its future growth.
Lyft’s (NASDAQ:LYFT) CEO declaring profitability a year before analyst expectations, in Q4/2021, sent the stock higher at the end of last year. Still, investors need a 2-3 year timeframe because profitability is still two years away. Lyft will probably cut costs and lower headcount while raising rates to narrow losses in the core business.
It has two major initiatives in autonomous vehicles. One is its open platform strategy, which should drive adaption as partners join. For example, the first vehicles from the Waymo platform are live in the Phoenix area. Its partnership with Aptiv continues to flourish. The companies completed over 50,000 rides on the Aptiv platform in Las Vegas.
In the first phase of self-driving cars, Lyft will roll them out to its ridesharing platform. Then, it will start testing self-driving using all the camera data is collected from the Lyft platform.
Lyft forecasts revenue in the range of $3.275 – $3.3 billion in FY2019. Adjusted EBITDA will be in the range of negative $1.175 to negative $1.150 billion. Looking beyond this year, if Lyft’s margins expand to the positive mid-single digits, investors have a reason to accumulate LYFT stock at these levels.
Uber Technologies (UBER)
Uber (NYSE:UBER) investors faced two negative headwinds that sent the stock lower in recent weeks. The company proposed a $750 million senior notes offering. UBER said it “intends to use the proceeds from this offering primarily to fund a portion of the purchase price in connection with the closing of Uber’s pending acquisition of Careem Inc.”
Uber paid Careem to acquire $3.1 billion. On its balance sheet and not including the $1.8 billion in restricted cash, Uber had $11.74 billion in cash and cash equivalents as of June 30.
News that Uber laid off 350 employees will lower operating costs, but bullish investors will question its future growth with a smaller staff. Despite the worries, Uber’s investments in autonomous cars will eventually pay off. During the second quarter, the company unveiled its first production car capable of self-driving. Volvo’s newest XC90 SUV is set to integrate into ATG’s self-driving system for Uber.
Uber continues to test self-driving cars in some American cities. Drivers operate the vehicles initially, collecting mapping data and capturing driving scenarios. Uber engineers will reproduce the latter information in simulations, but fully autonomous driving will not happen immediately following these tests. The company will need to first test the self-driving features on the Volvo vehicle first. And this time, it will test the multiple redundant backup systems.
Investors should be aware that short-term results were unfavorable. After cratering late last year, Uber stock nearly has returned to its February 2019 levels as of this writing.
Aptiv (NYSE:APTV) continues to win new customer awards, lifting its broad portfolio. Since 2016, bookings in active safety topped $11 billion while bookings were $18.9 billion from engineered components.
The advanced safety and user experience unit grew above the market average. And as Aptiv applies sensing, software, and centralized computing, investors in autonomous driving markets will benefit from holding APTV stock.
Last year, Aptiv met or beat expectations in each quarter, sales in active safety grew 53%, above the estimated 45% FY 2019 level. Growth topped 30% over the market in China. Unfortunately, the stock just hasn’t been able to get much traction so far in 2020.
Aptiv is balancing the costs of short-term margin pressure versus longer-term opportunities in widening its growth in active safety. But with scalable solutions, the revenue growth prospects are enormous. The company said:
And as you know, a number of these advance active safety programs that we’re talking about the scalable level one, level 2 plus, level 3 minus that our global for global are complex programs, but the opportunity to be awarded those programs and to be awarded at the right sort of margin rate and expand our competitive moat, you know is something that we’ll have to evaluate versus the near-term investment resources to launch and develop those programs.
The ADAS market has strong profit margins ahead that will offset declines from mobility. And as Aptiv continues its investment cycle, especially in complex programs, investors will benefit in the long-term.
Author owns shares of NXPI.