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3 Top Driverless Car Stocks to Watch in February

Demitrios Kalogeropoulos, Leo Sun, and Jamal Carnette, CFA, The Motley Fool

Even the most groundbreaking, innovative technology can take decades to enter the mainstream. Yet the massive potential market for driverless cars, combined with rapid recent advancements in hardware, have helped convince hundreds of companies to target this nascent industry niche.

Below, we'll highlight just a few of those entities that deserve investor attention right now. Read on to see why Ambarella (NASDAQ: AMBA), BlackBerry (NYSE: BB), and NVIDIA (NASDAQ: NVDA) are worth following over the coming weeks.

An engineer at work on a semiconductor chip.

Image source: Getty Images.

A computer-vision specialist

Demitri Kalogeropoulos (Ambarella): Investor sentiment turned negative against many small tech companies at the end of 2018 and helped push Ambarella shares sharply lower for the year. It didn't help that the semiconductor specialist, which produces low-power video compression hardware for miniature cameras, has seen sales growth grind to a halt while profitability declined in the last three quarters. Management's outlook for the fiscal fourth quarter isn't optimistic, either, with revenue set to slump by 29%.

Those low expectations could set shareholders up for gains when the company reports earnings results on March 1. CEO Fermi Wang and his team may highlight some good news, such as progress at securing a bigger client base for Ambarella's second generation of computer vision chips.

Early market share wins in this potentially booming industry would mark an important first step. However, Ambarella isn't likely to reverse its recent stock price slide until the company secures bigger avenues for growth and can raise prices to reflect its design innovation leadership. Investors will have a better idea about those trends when they see the 2019 sales and profitability outlook management will issue in the March report.

A bet on branded car tech

Jamal Carnette, CFA (BlackBerry): While it's simple to think of driverless cars as an all-or-nothing proposition, the reality is that vehicles are on a continuum from fully human operated to truly unmanned. In between these extremes are various features as mundane as cruise control and handsfree systems and as complicated as unassisted maneuvering and path tracking. BlackBerry's QNX technology has a strong foothold in this market, as its software/operating system (OS) is in more than 120 million cars across more than a dozen car brands performing many or all of these functions.

CEO John Chen has doubled down on cybersecurity and automotive applications as the company's focal points, specifically autonomous vehicles for the latter. Last quarter the company reported QNX had four design wins (a fancy way to say the automaker initially chose QNX) in advanced driver-assistance systems. Recently the company partnered with a Canadian start-up -- LeddarTech -- to provide the OS for LeddarTech's LiDAR (Light Detection and Ranging) platform.

The company is also seeing financial results from its QNX car-tech focus. Last quarter, BlackBerry's technology solutions division reported 23% year-over-year growth owing to its automotive vertical. Despite the green shoots of success, the company is not resting on its laurels in autonomous vehicles as it did with smartphones and has a huge backer in the form of Prime Minister Justin Trudeau; BlackBerry is getting a CA$40 million grant from the Canadian government to develop next-gen technologies that will power autonomous cars.

BlackBerry's QNX is already a mainstay in automobiles, and the company is looking to leverage those relationships to become the de facto plug-and-play OS in autonomous vehicles, akin to Alphabet's Android in smartphones. Investors who believe driverless cars are the next big thing would be wise to put the company on their watch lists and follow this industry closely.

A beaten-down chipmaker

Leo Sun (NVIDIA): NVIDIA lost about 40% of its value over the past six months over concerns about slowing sales of its data center and gaming GPUs. NVIDIA attributed those declines to three causes: the end of the cryptocurrency boom, which flooded the market with cheap GPUs; softer demand in China; and weak sales of its new Turing-based GPUs.

NVIDIA's revenue plunged 24% annually last quarter, but it allayed some of those fears with a forecast for flat to slightly negative sales growth in fiscal 2020 -- which was slightly better than the consensus forecast for a 5% decline.

NVIDIA is best known for its gaming GPUs, but its Tegra CPUs also power cars. NVIDIA currently supplies over 370 Drive partners -- including automakers, suppliers, and service providers -- with its driverless technologies. Its Drive PX, PX 2, PX Xavier, and PX Pegasus platforms all let automakers add driverless capabilities to their cars by plugging in an onboard computer.

NVIDIA's Automotive revenues rose 23% annually to $163 million last quarter. That accounted for only 7% of the chipmaker's top line, but it helped its data center and professional visualization businesses partly offset a 45% plunge in gaming revenues.

During the quarter, NVIDIA launched Drive AutoPilot, the world's "first commercially available Level 2+ automated driving system." It also announced a new partnership with Daimler's Mercedes-Benz to create a "centralized computing architecture" for next-gen AI-controlled vehicles.

These moves could widen NVIDIA's moat against Intel, which became a major player in the automotive market after its takeover of Mobileye, which provides ADAS (advanced driver assistance system) solutions to about 90% of the world's automakers. Looking ahead, investors should see if NVIDIA's auto business can keep expanding as the chipmaker tries to turn around its core gaming business.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Jamal Carnette, CFA has no position in any of the stocks mentioned. Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and Nvidia. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.