Global demand for automotive lidar sensors is rising. Recent advancements in autonomous driving technology and tightening regulations over vehicle safety are leading to an upheaval in the automobile sector. MicroVision (NASDAQ:MVIS) is one of several companies vying for a share in the growing automotive lidar market. MicroVisions’ laser beam scanning (LBS) technology holds a preeminent place in the market. That is the reason MVIS stock has done well recently.
The advent of advanced driver assistance systems (ADAS) features and lidar sensors in cars is a major reason for their increased safety. Consequently, it is prompting regulatory bodies to mandate that certain levels of technological incorporation are met, which will create high-growth opportunities for those that can provide these technologies or components.
MicroVision is poised to take off with its first-generation automotive Long Range Lidar Sensors (LRLs). Early investors are justifiably happy. It’s easy to get sidetracked by the hustle of entrepreneurship, but patience is key. If you’re patient enough, your investment will pay off in spades. And this is what is happening with MVIS stock.
The Stars Are Aligning for MVIS Stock
However, there are certain risks in pouring capital into this company.
MicroVision has incurred substantial losses due to limited demand for legacy products. It is now in its second decade in business. And the tech company faces an uphill battle against stiff competition from incumbents already well established in this market segment.
The risks mentioned above notwithstanding, MicroVision is poised to capitalize on the shift towards autonomy and advanced driver assistance systems (ADAS) with its lidar technology. The well-timed development of best-in-class automotive sensors is exactly the catalyst the company needs after struggling in recent years. The stock price is also trading at a discount to its 52-week highs.
The stars are aligning for this investment.
Impressive Automotive Lidar Sensors
In recent years, MicroVision has been pivoting its focus to the development of automotive lidar sensors. It builds on an existing proprietary laser boresight technology that can be used in cars and trucks as a safety device with unparalleled capabilities for tracking objects around it.
MicroVision’s product is the industry’s smallest and most compact lidar system. A major competitive advantage is its small size. This also makes it easy to integrate with products other than cars, like cameras or robots. Or any other product which might require advanced vision capabilities for pathfinding or navigation.
The design advantage could ultimately reduce the total number of sensors required per vehicle for advanced safety features in autonomous driving. It improves upon current bulky systems which are often accompanied by multiple moving parts. MicroVision’s sensors are smaller than typical consumer electronics. So, you can place them compactly without disrupting the design of sleek passenger vehicle models.
Operating Model Lends Certain Advantages
Apart from its revenue coming from the sales of sensors, MicroVision will continue to receive royalty revenue from Microsoft (NASDAQ:MSFT). The tech giant made a strategic partnership with MicroVision in 2017 to produce high-definition displays.
In 2020, Microvision transferred the rights to produce their components to be more cost-efficient. In return for this agreement with Microsoft, the company will receive a licensing fee based on profit margins from previous production levels. The relationship between the two entities benefits MVIS stock immensely.
Just as an example, when Microsoft inked a new up to $22 billion HoloLens mixed reality headset agreement with the U.S. Army, MVIS stock soared. The reason is simple. Microvision supplies the HoloLens 2 models. Hence, the stock soared because of the connection to MSFT. Subsequently, any further contracts of this ilk will have a near-identical impact on shares.
Unavoidable Costs
Research and Development (R&D) is at the heart of MicroVision’s expertise in LBS and automotive lidar technology. Spending on R&D related expenses is expected to remain elevated for the next few years.
These expenses are unavoidable. MicroVision needs to keep improving performance with additional applied research. Consequently, it will help enhance its product suite for more widespread adoption by different markets or applications.
Meanwhile, MicroVision is making major strides in Europe and expects a new office there by year end. The company is also planning on growing its North American team and teams across Asia-Pacific regions for long-term success. It will lead to an increase in selling, general and administrative expenses (SG&A).
However, it would help if you put these costs in context. They are part of a strategic vision to expand the reach of offerings overseas.
Wait for MVIS Stock to Drop
MicroVision is hitting its stride in the market with the development of best-in-class LRL automotive sensors and global lidar tailwinds. The only thing going against MVIS stock is overvaluation. It has a one-year return of about 200%. Now, there might be certain investors who will say that the shares are finally trading at attractive multiples after falling over 50% in the last three months. However, what you need to keep in mind is that the stock is in a downtrend.
As you can see from the chart below, it has broken resistance several times in the last few months. In the last month, the bulls have tried to steady the ship at around $7. However, considering the negative sentiment, the bulls can hold on for only so long before the price breaks through this key level as well.
Secondly, MVIS is trading mostly on future growth and progress. Undoubtedly, self-driving cars are the future. However, they are not the norm yet.
Consequently, if it cools down further, MVIS stock would be a good stock to future-proof your portfolio.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
