An Underappreciated Stock Pick in the Self-Driving Revolution with Huge Upside Potential


Self-driving stocks have been killed over the past few weeks.

It all started when Waymo – Alphabet’s self-driving unit, which is widely considered the leader in self-driving technology – announced on April 2 that its longtime CEO John Krafcik would be stepping down. The move was a shock, and many industry observers viewed it as a sign that the self-driving industry is “stuck” right now.

Since then, we’ve seen self-driving stocks fall off a cliff.

Leading LiDAR makers Luminar (NASDAQ:LAZR) and Aeva (NYSE:AEVA) are both down more than 20% since April 2, while yesterday’s IPO of self-driving truck company TuSimple (NASDAQ:TSP) failed to impress.

But here’s the thing…

Self-driving is still the future – and it’s a future coming soon.

Forget the Krafcik resignation. That’s more a sign of Waymo ceding its lead in the self-driving industry than the industry slowing down. My connections in the industry tell me that Waymo – once the runaway leader in AVs – is quickly losing ground because of mismanagement and a lack of hardware innovation. Krafcik stepping down is a signal of these struggles.

It’s not a signal of the AV industry losing steam.

In fact, quite the opposite is happening. Outside of Waymo, every other company in the self-driving space is gaining business momentum.

Luminar just signed China’s biggest auto maker, SAIC, to a deal for its LiDAR sensors. Velodyne recently signed a five-year sales agreement with ThorDrive to use its LiDAR sensors in cargo and baggage ground support tractors. Aeva poached a long-time executive from the Waymo team. Self-driving tech company Aurora teamed up with Volvo in March to make fully autonomous trucks for North America.

Make no mistake. The AV industry is heating up. Not cooling down.

So don’t let recent price action in self-driving stocks fool you. For long-term investors, recent weakness is a golden buying opportunity.

Today, we will tell you about one such golden buying opportunity in an under-the-radar LiDAR company whose potentially breakthrough “digital” LiDAR technology is being greatly underappreciated by Wall Street. From current levels, this self-driving tech stock may offer the most upside potential of any name in the AV space.

Pioneering the “Digital Revolution” in LiDAR Sensors

Remember old-school “analog” cameras?

They were big, clunky, and expensive machines that were complicated to operate because they contained so many different hardware components. Not to mention, getting the film off those cameras required a film room or a trip down to the local Costco.

But modern “digital” cameras are quite the opposite. They’re small. They’re sleek. They’re cheap. They’re easy-to-use. And you can easily transfer photos and videos from them to your computer, sometimes via a simple cord connection and more often by a cloud transfer.

What happened?

Cameras got digitized.

More specifically, engineers figured out how to take all the functions performed by legacy hardware components of an analog camera, and “program” them into a CMOS (Complementary Metal Oxide Semiconductor) chip. Those CMOS chips became the “brains” of cameras – and today, cameras are just CMOS chips, casings, and lenses.

The same thing happened in smartphones. Computers. Pretty much all consumer electronics. They all used to be huge with tons of hardware components. Now, they’re all small, with a CMOS chip running most of the operations.

A small self-driving technology company by the name of Ouster (NYSE:OUST) is betting on the fact that this same CMOS-led digitization trend of consumer electronics devices will play out in the LiDAR world.

Today’s LiDAR are analog devices. They are big laser systems that include hundreds to sometimes even thousands of discrete components, all working together to create a super-complex AV sensor.

The problems therein, of course, are two-fold – and they’re the same exact problems that analog cameras and analog phones ran into: Size and cost.

With so many hardware components, today’s incumbent LiDAR systems are quite big… and quite expensive. So big and expensive, in fact, that almost all industry insiders agree that before these sensors experience widespread adoption among cars and trucks, they’ll need to get much smaller and cheaper.

One way to do that is what Luminar, Aeva, and others are doing, which is simply improving the underlying technology of analog LiDAR systems and leveraging economies of scale to drive costs down.

But Ouster thinks that is a short-term fix – and that long-term, LiDAR systems will be built on CMOS chips.

So, the company has created the world’s first and leading digital LiDAR built on CMOS chips that comprises just three integrated technologies – a digital receiver SoC, a VCSEL laser array, and some micro-optics.

The result is a LiDAR system that performs nearly as well as analog LiDAR systems, but which is significantly smaller and cheaper. Luminar can install one forward LiDAR in a car for about $1,000. For that same price, Ouster can outfit a car with five different digital LiDAR sensors.

That’s why Ouster has racked up 500 customers from over 40 countries, with 200 of those customers in the production funnel. The sales opportunity in the customer funnel presently sits at $11 billion.

Yet, Ouster’s market cap is just $1.3 billion…

This is clearly an underappreciated LiDAR company with a potentially game-changing digital LiDAR that – at the very least – will see sizable uptake for its cost advantages, and at the very most, redefine the whole AV space.

And that’s why we think Ouster stock looks like a great opportunity during the recent self-driving sector meltdown.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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