Easily one of the top-performing stocks during this novel coronavirus pandemic, shares of Microvision (NASDAQ:MVIS) gained over 6,000% over the trailing year. The question now is whether MVIS stock is worth the gamble at the present juncture.
On one hand, I can understand the enthusiasm. As a specialist in lidar (light detection and ranging), Microvision presents an intriguingly bullish case, so long as the company is successful in delivering a viable product. With multiple automakers and technology firms pushing into both electric vehicles and autonomous driving solutions, MVIS stock could soar if the underlying company manages to secure a deal with one of these players.
Generally speaking, automakers have been optimistic about the acceleration of autonomous technologies. Many anticipate that within a few short years, we’ll see some level of autonomous driving hitting the road. Again, this benefits the narrative for MVIS stock as it implies that more companies are willing to entertain lidar-based partnerships to get a leg up on the competition.
Reasons to Be Skeptical of MVIS Stock
Still, skepticism toward MVIS stock remains. For one thing, I can’t think of too many people that are excited about betting on more upside from an equity unit that has already skyrocketed over 6,000%. Further, as my InvestorPlace colleague Will Ashworth pointed out, Microvision shares traded at 790-times sales when he wrote his article.
As of now that metric has gone down, but Ashworth’s point still stands.
Both he and InvestorPlace market analyst Joanna Makris make the point that competition is stiff, with Makris stating:
“Also in the market are more focused and vertically integrated automotive technology companies. This includes companies like Veoneer (NYSE:VNE), Aptiv Plc (NYSE:APTV), Luminar Technologies (NASDAQ:LAZR) and Velodyne Lidar (NASDAQ:VLDR). All of these competitors have closer ties to automakers than Microvision.”
Fundamentally, you’d figure that Microvision has a greater risk of fading away than being one of the top lidar players. Further, Makris points out that this isn’t the first time Microvision claimed to have a game-changing technology. Its PicoP laser sensing and scanning engine promised to revolutionize cell phones, but ended up being a dud.
Lidar Isn’t Without Its Question Marks
Still, you’ve got to give credit where it’s due. As Ashworth remarked, many pharmaceutical and biotech names pivoted to the Covid-19 treatment/vaccination race because that’s where the money was. Invariably, though, the biggest winners thus far in that space have been the usual suspects – essentially, big pharma.
Therefore, a chance exists that MVIS stock could grow into its valuation. I think it’s a far off one, personally. But the market wants lidar and other autonomous driving solutions, so management is playing the best card it has.
Still, the other risk for MVIS stock is the one that impacts every other lidar/autonomous driving investment: is the underlying industry truly a viable one?
According to PCmag.com contributor Ben Dickson, we’re far away from Level 5 autonomy, which is completely autonomous driving in all conditions. Key to this assessment is that artificial intelligence lacks common sense. In order to acquire that, it needs massive amounts of data to enhance its deep learning capabilities. As Dickson stated:
“Human drivers don’t need to know everything to make reasonable decisions when facing new situations … but current AI systems lack common sense, intuitive physics, basic psychology, and other elements that make us humans general problem solvers.”
In other words, the visualization challenge for lidar systems is just the beginning. The comprehensive AI component is what will make or break a lidar company.
In Over Its Head
Going back to Makris’ point, most lidar companies engaged in autonomous driving are laser focused on their core business. That’s not necessarily the case with Microvision, which is an intelligent sensory firm. Some might argue that the company is throwing darts and seeing which one sticks.
Ultimately, though, the main challenge with MVIS stock is that the underlying tech firm is competing in a scientifically and capital-intensive business. However, Microvision is already priced beyond perfection five times over. Chances are, you’d do well to avoid it at this price.
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.