Investors are keen to understand the confluence of artificial intelligence stocks and driverless vehicles. Although the technology has been under development for over a decade, it is now becoming a more prominent feature in society. Readers may have even experienced such vehicles first-hand themselves.
We reached out to David Clayton, Executive Director, Clemson University International Center for Automotive Research (CU-ICAR) for his take on developments in the space:
“While the market potential for autonomous driving has always been clear, several factors are now converging that could make it a reality in the coming decade. The costs of underlying technologies have decreased dramatically. Roughly 10 years ago, a LIDAR sensor, which enables the vehicle to “see” its surroundings, could cost $50,000 or more. In recent years, several products for autonomous driving have broken the $1,000 price barrier, and in 2020, companies are now targeting $100 market entrants. Likewise, computing costs continue to decrease with the development of more powerful GPU processors required for cars to understand surroundings and navigate.”
These catalysts are powerful drivers for artificial intelligence stocks.
The following companies are a great place to consider investment, or to simply learn more about self-driving vehicles. Because as companies develop AI and autonomous vehicles, artificial intelligence stocks will appreciate in price creating massive returns:
- Baidu (NASDAQ:BIDU)
- Aptiv (NYSE:APTV)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Microchip Technology (NASDAQ:MCHP)
- Nvidia (NASDAQ:NVDA)
- Ambarella (NASDAQ:AMBA)
Artificial Intelligence Stocks: Baidu (BIDU)
The “Google of China” is also making waves in autonomous vehicles along with its American counterpart. Baidu’s Apollo project is a long-running effort to commercialize self-driving vehicles. The project began in 2013 and now partners with over 100 industry names. For the past three years the company has been developing its Apollo Computing Unit (APU). The APU powers its self-parking capability platform called Apollo Valet parking.
The technology is scalable to 200,000 units yearly. It allows vehicles fitted with the technology to self park, as well as to be summoned to the driver’s location.
Regarding the advanced nature of the platform, Yunpeng Wang, an executive in the Technology Department of Baidu’s Intelligent Driving Group said:
“The mass production of ACU indicates that we have significantly advanced our capabilities in automotive-grade safety, commercialization of autonomous driving, and software and hardware supply chain management.”
The technology should give investors some idea of the direction large tech companies may go in pursuing vehicle AI. As Artificial Intelligence progresses, investors should consider that tech giants will feature heavily in these areas. Some of these projects will be spun-off into independent firms and stocks, but curious investors should first research tech giant AI efforts.
BIDU stock is risky and fraught with volatility, but there is plenty of upside. Investors in the equity are buying into interactive media primarily and a smaller play at autonomous AI vehicle tech, but it is worth considering.
Aptiv is a firm that could feature heavily in the smart everything revolution. The company operates in AI, autonomous vehicles, smart cities, and connectivity broadly. Further, in March, Aptiv formed a JV with Hyundai to address autonomous driving specifically.
As investors might imagine, the JV will be centered around the application of APTIV AI in Hyundai vehicles. The goal is to commercialize an “SAE Level 4/5 platform for robotaxi providers, fleet operators, and automotive manufacturers.”
SAE is an acronym for Society of Automotive Engineers. It has defined a scale for ranking the technology and autonomy of vehicles with six levels from zero to five. Level 0 is most common today and implies that all aspects of driving are human controlled.
According to technologymagazine.com:
“[L]evel 4 vehicles are able to intervene themselves if things go wrong or there is a system failure. In this sense, these cars are left completely to their own devices without any human intervention in the vast majority of situations, although the option to manually override does remain in difficult or preferable circumstances.”
The Aptiv/Hyundai JV is attempting to commercialize this level of autonomy applicable to taxis, fleet operators and manufacturers. Importantly, APTV stock is currently well-received by analysts. In fact, 17 of 24 currently rate it as a buy. However, it will be volatile. But as the company moves forward and sees returns on its investment, it should rise. That makes it one of the key Artificial Intelligence stocks to consider today.
Alphabet (GOOG, GOOGL)
Alphabet is synonymous with Google search, adsense, cloud and doubleclick. Investors sometimes forget that those are really the group’s ‘Alpha’ Bets. The company also comprises its Other Bets. These span many emerging and likely dominant future trends, including lifespan lengthening, healthcare, capital, AI and others. Among those Other Bets, Waymo is most likely to be the one that investors are familiar with.
Like Baidu and its Apollo project, Alphabet’s Waymo is not a pure play on vehicle autonomy and self-driving cars. As with a Baidu investment, an Alphabet purchase is much more diversified.
Waymo, meaning “Way forward in Mobility,” already has self-driving vehicles on the road. According to their site, this includes several vehicle types, including:
- Toyota Priuses, Lexus SUVs, a prototype vehicle called the ‘firefly, and fully self-driving hybrid Chrysler Pacifica vans.
- The company plans to add 20,000 Jaguar I-Pace electric vehicles to its fleet in coming years.
- Waymo is also working on a solution for Class 8 trucks (Tractor-Trailer Trucks)
The company is undertaking testing across the U.S. Readers in Washington, California, Arizona, Texas, Georgia and Michigan may have seen Waymo vehicles on their streets. The project is really all about increasing safety of driving and is gathering mountains of data to that end. Waymo currently has a ride hailing app, Waymo One, which serves people in the Phoenix area.
An investment in Waymo is possible through a purchase of GOOG stock. But investors are curious if Waymo could be spun off into an independent company in the future. Given the price appreciation in EV stocks, there is certainly a reasonable case for this to happen. Back in March, Waymo CEO John Krafcik said it was a future possibility. The statement followed Waymo’s first round of outside funding, a $2.25 billion investment by Silver Lake.
Microchip Technology (MCHP)
Perhaps a good place to start when discussing Microchip technology is analyst perception. Analysts are very positive on MCHP stock, and currently see plenty of upside from its $100 per share price. They rate it 19 for buy, and 5 for hold with a target price of $120. So, they see 20% upside on average.
Further, Microchip Technology operates across several industrial sectors, and provides solutions within each of those sectors. For the purpose of this article I’ll focus on its vehicle applications as they relate specifically to Advanced Driver Assistance Systems (ADAS). Microchip technology believes that “As the level of autonomy progresses, the number of ADAS sensors in a car will increase from two or three to over 30, including forward/rear/side facing cameras, forward-looking radar and LiDAR.”
The firm is involved specifically in LiDAR and surround view cameras. LiDAR is an acronym meaning Light Detection and Ranging. LiDAR systems create the images vehicles use to navigate through their surroundings. Microchip Technology also provides ethernet devices and controllers for use in the surround view cameras self-driving vehicles utilize. The company can also do complete system design for future surround view cameras utilized for ADAS.
Nvidia has been one of the real winners of the pandemic. NVDA stock has more than doubled after bouncing out of the March trough. The company is very profitable with operating margins, net margins, ROE and ROA, which are all above the 90% percentile of industry peers. Thus investors should be interested from an overall business perspective.
The company has also recently made news following its $40 billion purchase of ARM Holdings. The company’s chips are utilized across many industries, most notably gaming, but also partners with automotive companies. For example, Nvidia is currently partnered with Mercedes Benz to address vehicle autonomy.
Back in January 2019 Nvidia CEO Jensen Huang described the goal being the creation of “a single system providing self-driving capabilities and smart-cockpit functions that replaces dozens of smaller processors inside current cars.”
An article from Nasdaq.com earlier this summer summarized Nvidia’s current automotive AI efforts thusly:
“About 7% of Nvidia’s business is in the automotive sector, and half of that is geared toward ADAS and autonomous vehicle tech. The company produces the DRIVE platform, a fully scalable architecture capable of functioning in the Level 2 ADAS environment or in Level 4 fully autonomous driving … The DRIVE platform allows cloud-car-cloud data transfer, a model that will encourage machine learning at the higher levels of autonomy.”
Although NVDA is likely overvalued to a degree, analysts are strong on it. They overwhelmingly rate it a buy. The stock has many tailwinds and plenty of reason for optimism.
Ambarella creates solutions for cameras and vision processing across several industries. The company’s vision processors are currently being applied to autonomous vehicles. Currently its WACC vs. ROIC is 7.58% to -61.55%. Therefore, the company will have to figure out how to make better use of capital in the future. But, this is likely a reflection of the nature of development in emerging sectors.
Autonomous vehicles process data points into visual representations of their surround environment. Ambarella is a leader in that niche sector within AI and vehicle autonomy. At this point it is a growth stock in terms of its fundamentals. However, that does not preclude it from becoming fundamentally sound in coming years. It is certainly a stock to keep on your radar if you have interest in driverless vehicles and investing.
Despite the less than stellar fundamentals, analysts currently favor the stock, rating it a buy.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.