The 3 Most Undervalued Autonomous Driving Stocks to Buy Now: August 2023
When I first got the assignment to write about three undervalued autonomous driving stocks, the first thing that came to mind was if I even knew three names, let alone three undervalued ones.
It’s been a while since I’ve talked about self-driving car stocks. The last time was in April 2022, when I suggested Waymo could bring Alphabet (NASDAQ:GOOGL) a new revenue stream.
Perhaps Google’s parent is undervalued. It’s also been a long time since I’ve written about GOOGL stock.
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To get some ideas, I perused the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) list of holdings. It invests in 75 companies that are “involved in the development of autonomous vehicle technology, electric vehicles (‘EVs’), and EV components and materials,” states the ETF’s home page.
Alphabet is in the top position, accounting for 3.45% of the fund’s portfolio. I’m spying on at least one other name in the top 10 and at least one outside them.
Here are my three undervalued autonomous driving stocks to buy now.
Alphabet (GOOGL)
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You could argue that Alphabet stock isn’t undervalued, given it’s up 45% year-to-date and 112% over the past five years. However, that would lose sight of the fact that one of the company’s biggest future revenue generators has yet to deliver for shareholders.
When I wrote about Waymo a year ago in April, it had just announced that its fully autonomous driving experiment in San Francisco would take the next major step to commercial development.
Fast forward more than a year.
On Aug. 10, the California Public Utilities Commission issued approvals for Waymo and Cruise, the General Motors (NYSE:GM) driverless robotaxi service testing in San Francisco, to operate around the clock instead of just overnight.
“Today, Waymo received its driverless deployment permit from the California Public Utilities Commission (CPUC), the final step in a robust process with regulators before we could offer a paid fully autonomous ride-hailing service in San Francisco,” stated the company’s Aug. 10 press release.
“In the coming weeks, we’ll begin charging fares for rider-only trips in the city and gradually welcoming more riders into the service.”
According to the press release, it has over 100,000 people signed up on its waiting list. If you’re an Alphabet shareholder, this is the beginning of another cash machine for the company.
Trading at 5.78x sales, GOOGL stock’s valuation is less than its five-year average. With Waymo ready to contribute to Alphabet’s top line, you can’t put a price on this news.
Baidu (BIDU)
Source: monticello / Shutterstock.com
Baidu (NASDAQ:BIDU) is not in DRIV’s top 10. However, it is in the top 20.
The Chinese tech company has its hands in a lot of pies. For example, it has its own ChatGPT alternative called Ernie Bot. In late June, it suggested that its generative artificial intelligence (AI) chatbot outperformed OpenAI’s in several key areas.
“Citing the China Science Daily journal, Baidu said Ernie 3.5 surpassed ChatGPT in a number of benchmark tests. ChatGPT is based on OpenAI’s GPT 3.5 model,” CNBC reported in June.
“Ernie 3.5 also beat GPT 4, OpenAI’s latest and more advanced model, in Chinese language tests, according to the science journal.”
What’s that got to do with autonomous driving? Well, in November 2022, at Apollo Day, the company’s autonomous driving tech event, it announced that it had developed the first AI big model for autonomous driving, enabling it to recognize objects it hasn’t seen before.
“Backed by its solid AI technology, Baidu Apollo has created a safe, intelligent and efficient autonomous driving technology system, bringing robotaxi services from designated zones to open roads at scale,” said Jingkai Chen, Baidu’s autonomous driving technology expert at the event.
In June, the company said it had obtained a commercial license from regulators to operate its driverless ride-hailing service in parts of Shenzen. It can operate its Apollo Go driverless robotaxis fleet in an area of 117 square miles. It plans to have more than 200 on Chinese roads this summer.
In the trailing 12 months ended Q1 2023, its free cash flow was 21.8 billion Chinese Yuan ($2.98 billion). Based on an enterprise value of $35.9 billion, it has a free cash flow yield of 8.3%. I consider anything 8% or higher to be in value territory.
It’s a buy.
Qualcomm (QCOM)
Source: nikkimeel / Shutterstock.com
Qualcomm (NASDAQ:QCOM) is also in DRIV’s top 10, in the eighth spot.
On Jan. 5, 2020, the chipmaker launched its Snapdragon Ride Platform at the 2020 Consumer Electronics Show (CES).
“Snapdragon Ride aims to address the complexity of autonomous driving and ADAS by leveraging its high-performance, power-efficient hardware, industry-leading AI technologies and pioneering autonomous driving stack to deliver a comprehensive, cost and energy efficient systems solution,” stated its press release.
Fast forward to CES 2023.
Qualcomm introduced a few more products targeting the autonomous driving industry. The most significant is the Snapdragon Ride Flex system-on-a-chip, specifically designed to support digital dashboards and advanced driver assistance systems (ADAS). According to Forbes tech contributor Patrick Moorhead, the all-in-one design could generate more business from its automotive partners.
Moorhead’s best argument about these chips is that they provide real competition for Nvidia (NASDAQ:NVDA) in the area of fully integrated over-the-air solutions for future vehicles.
Competition begets innovation. What’s not to like?
As for analysts, they’re moderately optimistic about Qualcomm stock. Of the 32 that cover it, 21 rate it as “overweight” or an outright “buy”, while 10 have it as a “hold”, and just one “sell”. The median target price of $140 suggests it’s got nearly 30% upside over the next 12 months.
It trades at just 13.2x the current year’s earnings estimate of $8.34 a share. That compares to 53.8x for Nvidia.
It’s not hard to determine which stock currently has the better risk/reward proposition. Go ahead and add QCOM to your list of undervalued autonomous driving stocks worth buying now.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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