[Editor’s note: This story was previously published in November 2018. It has since been updated and republished.]
When Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) started to give the public a glimpse of its developments in self-driving cars, the idea seemed out of this world. Alphabet’s unit, Waymo, which stands for new way forward in mobility, is leading the way when it comes to the self-driving car trend.
But since the search-engine giant derives much of its revenue from advertising, some investors might be more interested in stocks to invest in that are closer to being pure-plays in the space.
With that said, here are five stocks to buy that will play a key role in the future of self-driving cars. Some are similar to Alphabet, as not every stock on this list is a “pure” autonomous vehicle play, but each will undoubtedly be at the forefront of this rapidly growing trend in the months and years ahead.
The first name on this list of stocks to invest in the trend of self-driving cars, Tesla (NASDAQ:TSLA), is one of the purest plays in the space. After all, TSLA’s development in autonomous driving is as impressive as the lead it has in the electronic vehicle market.
On Nov. 27, the company’s CEO, Elon Musk, took to the wheel when the company announced Version 9 software updates. The most notable feature was Navigate on Autopilot.
Navigate on Autopilot builds on the original Autopilot but does more: the car now suggests lane changes and, with driver supervision, it makes the lane changes. It also navigates highway interchanges and takes on-ramp/off-ramps as well as exits the highway.
This technology is powered by a neural network, so the more data it gets, the better the code becomes and the less buggy Navigate on Autopilot gets.
Tesla clearly offers the most advanced driver assist system on the market and the software will only get better as the company pushes out over the air (OTA) upgrades.
TSLA stock does not come cheap: shares trade for 30 times analysts’ consensus 2019 profit estimate. Debt-to-equity is 219 times, but the market’s confidence in Elon Musk should not hinder a money raise, should Tesla need it.
Ambarella (NASDAQ:AMBA), whose past growth rates came from supplying camera chip technology to GoPro (NASDAQ:GPRO), reinvented itself by developing computer vision (CV1, CV2) chips for the ADAS market. However, the transition to the market of self-driving cars has not been without hiccups. In 2018, Ambarella’s overall revenue dropped meaningfully year-over-year, and it’s expected to do the same this year.
The firm needs to spend its efforts on computer vision applications in the IP security, automotive and robotics AI markets. In the OEM automotive market, customers want a flexible solution that adds value. Since legacy automotive chips are vastly inferior — unable to meet processing performance requirements, consuming more power than the desired limits and exceeding thermal constraints for camera — Ambarella may have a moat.
Ambarella’s front-camera ADAS solution is a leading Tier 1 chip that it just introduced.in late January. In the Level 2 to Level 5 autonomous vehicle categories, the company offers a flexible open perception platform.
When investors look at the stock charts for Nvidia (NASDAQ:NVDA), the first thing they’ll notice is the drop in the NVDA stock price from over $280 down to around $170 as of Friday afternoon. The company’s main business, GPUs for PCs, has weakened.
Looking beyond the PC GPU market, Nvidia’s strength in automotive suggests this company is poised to grow along with the self-driving car trend. In 2018,the company’s revenue from automotive hit record levels.
Autonomous vehicle production and development engagement are growing. Nvidia’s next-generation AI-based cockpit infotainment systems should assure its growth rates hold in the automotive space.
At GTC Europe, Nvidia announced that Volvo would include Nvidia’s Drive AGX Xavier solution early in the 2020’s. The solution will deliver on Level 2+ assisted driving. This is made possible by the integration of 360-degree surround perception and a driver monitoring system.
General Motors (GM)
Looking within the automotive sector, General Motors’ (NYSE:GM) mass layoff announcement on Nov. 26 changed the strategic direction of the company.
Even though traditional auto parts suppliers will suffer, as will GM staff getting let go, development for GM’s self-driving car unit will probably accelerate. GM’s Orion, Michigan plant will manufacture autonomous vehicles once they are mass-produced. The plant is a natural location for self-driving car production because it already manufactures electric vehicles.
GM is making a big commitment to the self-driving trend. Between May 2018 and October 2018, GM and its self-driving car unit, Cruise, attracted $5 billion in investments. This amount pushed GM ahead of Alphabet’s Waymo, Uber and Lyft.
GM’s restructuring could distract the company from its self-driving car development. Glitches in the driverless cars could also delay the company from releasing it on the market. But if management recognizes the resources it needs to push the technology’s development, GM has a chance of succeeding in the ADAS space.
Aptiv PLC (NYSE:APTV) has earned a number of customer awards that recognized the firm’s innovations in advanced safety, electrification and connectivity.
It won a business award for its six highly scalable Level 2+ ADAS systems with a major North American OEM. The auto parts supplier is pivoting its business toward software, compute and integration solutions. This transition is playing out because Aptiv is booking new business.
Aptiv, through its Mobility and Services Group, makes automated driving software. Its development in high-speed central compute platforms give the company a competitive edge. This fits nicely with its goal of having more automated and connected vehicle content.
Given APTV’s forward price-earnings ratio of 13.5, markets appear to have ignored this firm’s growth potential in self-driving cars.
If investors look beyond the macro challenges for APTV stock and put a valuation on the technology portion of the business, Aptiv is undervalued.
As of this writing, Chris Lau did not own shares in any of the aforementioned securities, but was considering buying Aptiv in the next 72 hours.
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