Intel Corp’s INTC recently announced plan to acquire Israel-based Mobileye will improve its competitive position in the fast growing driverless car market. The $15 billion deal, which many analysts believe is steep as Intel is paying a whopping 34% premium, will aid the company seize a portion of the market estimated to be worth $25 billion annually by 2025, as per consulting firm Bain & Company.
According to Boston Consulting Group estimates, the autonomous car market will be worth $42 billion by 2025 and $77 billion by 2035. Per market research firm IHS, autonomous car sales will hit 21 million by 2035, growing at a CAGR of 43% over 2025-2035 time frame. In the U.S. the figure is anticipated to be 4.5 million autonomous vehicles by 2035.
The massive growth prospect of the self-driving car market has not only lured semiconductor companies like Intel, Qualcomm QCOM and NVIDIA NVDA but also hardcore technology companies like Alphabet GOOGL and Apple AAPL to foray into the market. Cab-aggregators Uber, Lyft, search-engine Baidu, Microsoft as well as auto-makers General Motors, Ford and Volkswagen are prominent names flocking to capitalize on this highly lucrative opportunity.
The robust growth in number of autonomous vehicles deployed in streets will surely escalate demand for sensor technology and auto components (chips, electronic circuits, algorithms) that support advanced driver assistance systems (ADAS), the basic building block for self-driving cars. This is a significant boost for semiconductor companies.
As per J.P. Morgan, the estimated total available market for semiconductors used in semiautonomous and fully autonomous cars will reach about $7.3 billion by 2025, a CAGR of approximately 62.5% starting in 2017.
Moreover, the massive data generated by these autonomous vehicles related to road conditions, accident prone zones, location mapping, weather report, as well as user preferences during the driving (privacy issues notwithstanding) will actually be a much prized resource for companies, which they can monetize later.
How Mobileye Benefits Intel?
The driverless market is lucrative for Intel as it faces declining growth in core PC and data center markets. The latest acquisition will help Intel to rapidly penetrate the ADAS market. (Read More: Intel to Expand in Automated Car Space with Stake in HERE)
We note that Intel a Zacks Rank #3 (Hold) stock, has underperformed the Zacks Semiconductor General industry, in the last one year. While the stock has gained 11%, the industry witnessed an increase of 44.5% over the same time frame.
Currently, Mobileye’s sensor technology is used by a number of automakers like General Motors, Audi, BMW and Ford. Intel will definitely benefit from these partnerships with the leading automakers.
In Jul, 2016, the company along with Mobileye and BMW announced a collaboration to manufacture self-driving cars for streets by 2021. The companies plan to put a fleet of 40 self-driving BMW cars on the street by the end of 2017. It has also signed partnership deal with Delphi Automotive.
Competition Heats Up: 4 Rivals
Although the acquisition gives Intel a slight edge, we believe that NVIDIA, Alphabet, Qualcomm, and Apple are close on heels:
NVIDIA – A Zacks Rank #3 stock, NVIDIA’s approach is more focused on the artificial intelligence (AI) and machine learning part of the driverless market. The company’s powerful graphic processor units (GPUs) are supporting the endeavors.
NVIDIA’s collaborations with HERE (Intel has a stake in this company) and ZENRIN expand the Live Map capabilities of autonomous vehicles. The company’s collaboration with Honda, Tesla Motors, Audi, Volvo, Mercedes-Benz and BMW makes it a formidable force in the driverless car market. (Read More: NVIDIA or Intel: Which Is Better for Driverless Car Investors?)
Moreover, the upcoming third generation Xavier supercomputer chip leverages NVIDIA’s position in the driverless car market going ahead. (Read More: Will NVIDIA Stock Benefit from Intel's Acquisition of Mobileye?)
Alphabet – This Zacks Rank #3 stock was really the primary aggressor among the technology companies in the driverless car market. Alphabet, then Google, unveiled the first fully operational driverless car way back in 2010. The recently created Waymo now primarily focuses on developing the applications and technology that drive these cars, whether for ride-sharing or personal use. (Read More: Google Finds 'Waze' to Build Self-Driving Technology)
Alphabet has also partnered with Fiat Chrysler under which Google will incorporate its self-driving technology into 100 Chrysler Pacifica minivans to be used as test vehicles. Separately, Google and Ford Motor have partnered to lead a coalition of companies that will push for federal approval of autonomous cars in the near future.
We also believe that Alphabet’s expertise in data collecting, storing and monetizing makes it a formidable opponent of Intel in the autonomous driving market.
Qualcomm – Another Zacks Rank #3 stock, the company’s partnership with the likes of OnStar and TomTom are helping it to penetrate the driverless car market. Qualcomm’s drive data platform “is designed to intelligently collect and analyze information from a vehicle’s sensors.” The company has partnered with Volkswagen for current and future autonomous driving vehicles.
Moreover, the acquisition of NXP Semiconductors will boost Qualcomm’s presence in the connectivity market. (Read More: Qualcomm Moves Closer to Acquiring NXP Semiconductors)
Apple – Perhaps the most secretive challenger, the iPhone-maker has acknowledged its interest in autonomous driving. The company has been investing heavily in machine learning and automation. For years, the company has been rumored to work on self-driving Project Titan and has also hired executives from Tesla Motors and other automakers. The company carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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