Luminar Might Be the Best Pure-Play on Autonomous Vehicles

Autonomous vehicles (AVs) are on the way. And when they get here, Luminar Technologies (NASDAQ:LAZR) has the potential to be an enormous winner. Investors in LAZR stock could reap the benefits.

A finger hovering over an "autonomous drive" button.
Source: Olivier Le Moal /

In fact, I’d argue that there isn’t a better pure-play on autonomous vehicles than LAZR. There is no shortage of potential winners from AV growth, certainly. But few (if any) of those potential winners are a straight-on AV play.

Of course, some have other businesses with far less significant growth potential. Others might well lose business overall if AVs lead to a decrease in the number of vehicles owned, as some believe will happen.

Now, Luminar does have a few direct peers on the public markets. However, those companies are assigned far lower valuations at the moment. And that’s logical — from here, they seem to have dimmer prospects.

As always, there are risks. LAZR stock has tripled since its special purpose acquisition company (SPAC) merger was announced. Now it has a market capitalization of over $10.4 billion with profits still a ways off. Plus, AV development may take longer than sector bulls expect.

But I believe the risks are worth taking — particularly for those sector bulls.

LAZR Stock’s Big Market and the Risks

If an investor wanted to boil down the case for LAZR stock to one number, it would be $150 billion. That’s the total addressable market Luminar highlighted in its merger presentation back in August (Page 11).

Now, caution first. Just because Luminar says the total addressable market (TAM) will be $150 billion by 2030 doesn’t mean that’s what the market will actually be.

For one, AVs still have a long was to go in terms of tech, with “corner cases” like inattentive pedestrians or an oddly-shaped curve at sunset still causing problems. Plus, regulators likely will move slower than developers like LAZR will. It’s also likely that many drivers will prefer to keep control of their vehicles, believing they are better than a computer (even if they’re incorrect in believing so).

On top of that, it’s also not guaranteed that Luminar will be the winner. True, the company is a leader in lidar (light detection and ranging), which looks like the most promising option for self-driving cars. But there is no shortage of other companies working on their own systems. And even some of the brightest minds in the automotive industry believe that lidar is “a fool’s errand” to begin with.

It’s easy to look at a big market and make a simple model for huge upside. For example, give Luminar 10% of a $150 billion market, assign 15% pre-tax margins and the company is making in the range of $2 billion. That’s probably a $50 billion company at least — meaning LAZR stock has nearly 400% upside from here.

That kind of model sounds simple, but it often is too simplistic. However, the good news for LAZR is that that model actually seems to hold some water.

The Bull Case for Luminar

Let’s take the addressable market first. The $150 billion figure for 2030 might be high — in fact, it probably is. After all, companies are more likely to be too optimistic than too pessimistic. That’s doubly true with SPACs, which are trying to gain shareholder approval for the merger.

But the exact number in the exact right year isn’t necessarily the point. AV systems are going to be a huge business. Now, maybe “huge” means $150 billion in 2030. Or, maybe it means $85 billion by 2033. However the market plays out, though, there’s going to be more than enough for LAZR to post big-time profits if it can capture a reasonable market share.

And on that front, I’m optimistic. This is a company (unlike a lot of newer auto-tech plays) that has significant intellectual property. It’s not just putting together components from other manufacturers.

In fact, Luminar has even developed its own chips. The company offers a complete system, built from the ground up over the past eight years.

That’s helpful in terms of quality and staying ahead of rivals in the lidar space. It’s also a big deal in terms of profit margins. Why? Once LAZR starts booking significant revenue, it won’t be sending big chunks of it out the door to subcontractors and suppliers.

And while lidar has skeptics, it has many more believers. Billions of dollars of investment capital have flowed toward companies working on the technology.

So, the case here is simple. The market is likely to be huge and Luminar has a head start as well as a durable competitive advantage. Yes, a $10.4 billion valuation incorporates an awful lot of growth. But LAZR stock has a good shot at delivering that growth — and more.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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