To say that Luminar Technologies (NASDAQ:LAZR) enjoyed an explosive debut would be a gross understatement. Making its public debut via a reverse merger, LAZR stock makes good on this year of the SPAC, or special purpose acquisition company. Specializing in autonomous driving solutions, Luminar is also levered to next-generation transportation methods, which of course is a hot topic.
But the idea of buying into shares right now, especially after an extremely volatile session last Friday where they lost nearly 18% of market value, is a tough proposition.
From where I stand, the debate about LAZR stock comes down to speculation of its potential versus the underlying reality of true vehicular autonomy.
Precise and Accurate
Here’s what I mean. On one hand, the science behind Luminar Technologies is incredibly compelling. From my last write-up of the company, I mentioned that it incorporates “an advanced system based off lidar, or light detection and ranging. Utilizing pulses of electromagnetic radiation, lidar signals ‘ping’ off objects and calculates their distance based on the time it takes for the signal to return.”
As an active detection system, Luminar has a distinct advantage (in terms of present-day technologies) over passive systems like cameras in inclement conditions. Camera sensors can fog up, which may easily confuse autonomous processors. Of course, confusion can lead to devastating results. However, Luminar’s emitted lasers can pinpoint precisely where an object is. As the innovation improves, so will the processing ability to distinguish various objects.
And because Luminar is so precise and accurate, it’s safer for vehicle-pedestrian interactions. Thanks to the company’s three-dimensional velocity detection system, its computer can detect objects that obstruct the underlying vehicle’s path, as well as predict the disrupting object’s motions. That way, Luminar’s system can make the appropriate avoidance maneuver.
It’s all brilliant stuff that has drawn both investors and speculators to LAZR stock. But how likely will mainstream autonomy be?
LAZR Stock Has a Hype Factor You Don’t Want to Ignore
Interestingly, Elon Musk of Tesla (NASDAQ:TSLA) has choice words for the lidar system underlining LAZR stock. Last year, Musk decried lidar as a “fool’s errand.” He likened the solution to “expensive sensors that are unnecessary.” Still, to Luminar’s credit, the upstart firm has so far achieved impressive testing results. On the other hand, Tesla’s full-autonomous efforts have had some hiccups, to put it diplomatically.
But does that make LAZR stock a screaming buy right now? It very well might seem that way. As you know, more companies are pushing toward electric vehicles and other alternative fuel sources. Also, the novel coronavirus pandemic incentivizes autonomous research and development. Biologically and societally, major pandemics have imposed significant negative impacts on affected people. Therefore, the paradigm of public transportation can change forever.
Nevertheless, you don’t want to jump right into LAZR stock without appreciating that we’ve been here before in terms of hype and overly optimistic forecasts of technological integration into daily society. Just consider the words of former U.S. Secretary of Transportation Anthony Foxx.
Back in 2016, Foxx stated that “By 2021, we will see autonomous vehicles in operation across the country in ways that we [only] imagine today… My daughter, who will be 16 in 2021, won’t have her driver’s license. She will be using a service.”
I mention this not to pick on Foxx. Rather, I think it’s important to understand the surprising power of euphoria, especially when there’s money involved. If the secretary of transportation can get caught up in the hype train, imagine what that could do (temporarily) to Robinhood traders.
Many Variables Ahead
More importantly, Vox contributor Eric Adams noted that there are so many variables for autonomous systems to account for. Adams mentions edge cases, such as “comprehending the difference between a flock of birds dashing across the road or wind-blown leaves that are fine to run down.”
Until autonomous systems can comprehensively adapt to the unknown while keeping occupants safe, Luminar and competitors such as Velodyne Lidar (NASDAQ:VLDR) will have a steep uphill battle to climb.
Know What You’re Getting Into
That’s not to say that you should outright avoid LAZR stock. Again, I believe it’s a compelling technology. However, you should be aware that as shares attract a hefty premium, stakeholders will want to see some fundamental justification. The issue is that justification may be a long time coming due to the aforementioned variables.
If I had to guess the nearer-term trajectory of LAZR stock, though, I’d say we may have more downside ahead of us. For example, I can’t help but notice many SPACs printed a similar trajectory to Luminar: huge initial momentum, then a crash, then perhaps another leg higher.
But that should be good news if you’re long-term bullish on Luminar as the market may give you a discount. Just prepare for a choppy ride.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.