NVIDIA Or Intel: Which Is Better For Driverless Car Investors?

Self-driving cars, once the stuff of science fiction movies, are set to become a reality soon. Already many driver-assist features, such as lane changing, traffic jam assistant and others, are being offered by automakers. Such features are, essentially, stepping stones to autonomous driving technology.

By definition, an autonomous vehicle is a car that is able to take on the primary transportation capabilities of a driver-controlled car. It can sense its surrounding environment and navigate that space without the involvement of humans. Technology like radar, lidar, GPS and computer vision help the cars accomplish this feat.

Nearly all automakers are now in various stages of developing self-driving cars. Some have even started testing them on public roads. Although bringing these cars to market will take years, it is obvious that driverless cars have a place in the future of the technology industry. Thus, long-term investors interested in the technology sector would be well-advised to invest in stocks that look set to gain from this trend. Since the market is dominated by a few large players, it makes sense to weigh the pros and cons before investing.

Huge Growth Potential of the Industry

According to data available from BI intelligence, 10 million self-driving cars will be on the road by 2020. Per Statista, the market for fully autonomous vehicles will grow to almost $6 billion while partially autonomous vehicles market will reach $36 billion by 2025. According to Boston Consulting Group estimates, the autonomous car market will be worth $42 billion by 2025 and $77 billion by 2035.

These estimates encourage us about NVIDIA Corp. NVDA and Intel Corp’s. INTC growth prospects in the space. With its sustained focus on developing new and more advanced technologies for self-diving cars, we believe that the two companies is well poised to capitalize on this opportunity. Both these companies have generated high returns for investors so far and have the potential to exceed expectations in the days ahead.

NVIDIA Vs. Intel

NVIDIA and Intel are two big players within the driverless car space. 

Intel recently struck a deal to acquire driver assistance technology company Mobileye N.V. MBLY for roughly $15.3 billion. The deal marks the next step in the driverless car race.

Intel plans on integrating its own automated driving group with Mobileye’s renowned operations, and the combined entity will be run by Mobileye Chairman Amnon Shashua. The deal will combine Intel’s processors with Mobileye’s renowned computer vision, making it the biggest purchase of a company that’s solely focused on the self-driving market.

Intel’s $15.3 billion acquisition is the biggest ever for an Israeli technology company. The move positions Intel as a “leading technology provider in the fast-growing market for highly and fully autonomous vehicles,” according to a company statement Monday. “Intel estimates the vehicle systems, data and services market opportunity to be up to $70 billion by 2030.”

The deal comes after Mobileye partnered with self-driving technology company Delphi Automotive in Aug. 2016. The two companies planned to create an affordable self-driving car platform to sell to carmakers by 2019. In Nov. 2016, Intel announced that Mobileye and Delphi would use its processors. Intel, Mobileye and German automaker BMW AG partnered to test 40 self-driving cars, which could possibly lead to production by 2021.

Intel’s purchase helps the technology giant begin to compete in the race towards autonomous car technology.

In January, Intel announced it would purchase a 15% stake in digital mapmaker Here International B.V., joining BMW AG and Volkswagen AG’s VLKAY Audi, to further the development in the real-time technology needed to improve self-driving car technology.

With these types of partnerships in mind, Intel and Mobileye’s biggest competitor going forward will be NVIDIA and its collaboration with Tesla Inc. TSLA. NVIDIA is best known for its gaming and smartphone graphics chips, but like Intel, the company has been developing computing hardware for cars.

NVIDIA’s foray into the autonomous vehicles and other automotive electronics space has also been driving the stock higher since mid-2015. It should be noted that during the last reported quarter (fourth quarter of fiscal 2017), the company witnessed a 38% year-over-year jump in automotive segment revenues, mainly driven by premium infotainment and digital cockpit features in mainstream cars.

Notably, during the 2017 CES event, the company announced two important collaborations – with HERE and ZENRIN – that will expand the Live Map capabilities of autonomous vehicles Apart from this, the company announced an extension of its decade-long partnership with Audi. The two companies have now decided to put advanced AI cars on the road starting 2020.

It should be noted that NVIDIA forayed into autonomous vehicle and other automotive electronics space in 2015 by launching a computer vision system at the CES. It hasn’t looked back since then and has been continuously bringing new and more advanced technologies in the space.

At the beginning of 2016, NVIDIA launched DRIVE PX 2 – the world’s most powerful engine for in-vehicle AI. In Sep 2016, the graphic chip behemoth unveiled a new AI supercomputer chip designed for self-driving cars called Xavier at its GPU Technology Conference (GTC) in Amsterdam. With its sustained focus on developing new and more advanced AI technologies for self-diving cars, we believe that the company is well poised to become a leading provider of technology for autonomous vehicles.

Notably, since 2015, NVIDIA has been providing various autonomous technologies such as digital instrument clusters, navigation, advanced driver-assistance systems and infotainment under its partnerships with several automakers including Honda HMC, Tesla Motors, Audi, Volvo, Mercedes-Benz and BMW.

Therefore, we believe that the recent permit to test its driverless cars will encourage various other auto manufacturers to use NVIDIA’s processing units in their autonomous driving systems.

For years, these two companies have battled each other for market share and brand recognition in every conceivable way.

Which Stock to Choose?

Share price

NVIDIA, a Zacks Rank #3 (Hold) stock, remains one of the best performers in the semiconductor space. The stock has been clocking solid returns since the beginning of 2016 and has gained 216.9% in the last one year, outperforming the Zacks categorized Semiconductor-General industry’s return of just about 39.9%.

We note that Intel, a Zacks Rank #3 (Hold) stock, has underperformed the Zacks Semiconductor General industry in the past one year. While the company’s shares gained 10.9%, the industry returned 38.9% in the same period. Moreover, we don’t expect the shares to rebound in the near term.

Estimate Revisions

Over the past month, NVIDIA’s current quarter estimates have risen from 63 cents per share to 67 cents per share and current year estimates have risen from $2.69 per share to $2.79 per share.

While Intel’s current quarter estimates over the past one month have not shown any movement and is pegged at 65 cents. However, current year estimates have risen from $2.79 per share to $2.89 per share, over the same time frame.

Style Score, EPS Growth Rate, Market Cap

NVIDIA has a Growth Style Score of “A” with a long-term expected growth rate of 10.3%. The company has a market cap of $58.38 billion.

Intel has a Growth Style Score of “B” with a long-term expected growth rate of 8.42%. The company has a market cap of $169.78 billion.

Conclusion

These two stocks have grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections, with their share of pros and cons. But given the current scenario, we would bet on NVIDIA because it is well-positioned to outpace the industry and is fundamentally strong enough to withstand risks. Also, NVIDIA was one of the hottest stocks in the S&P 500 last year, and there’s a very good chance it could perform that way again in 2017.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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