Some of the next best tech picks to add to your portfolio will be driverless car stocks.
Growth in driverless car technology has already started - but will really take off over the next 10 to 20 years as vehicles become more "connected."
"The car is going to become a computer on wheels," NVIDIA Corp. (Nasdaq: NVDA) CEO Jen-Hsun Huang told The Wall Street Journal in March. "This is going to be a large business."
A Boston Consulting Group report in April estimated that the global market for driverless car technology will skyrocket to $42 billion by 2025 and then nearly double to $77 billion by 2035.
Many investors will try to play driverless car stocks by going after companies like Alphabet Inc. (formerly Google Inc.) (Nasdaq: GOOGL, GOOG) or Tesla Motors Inc. (Nasdaq: TSLA). But those obvious picks aren't the best way to play this promising category.
For the strongest driverless car stocks, think smaller - as in the semiconductor industry.
Why Driverless Cars Are a Huge Opportunity for Chipmakers
Not many people realize how pervasive technology already has become in automobiles. Today the typical car contains about $334 worth of semiconductors.
And it's expected to rise steadily over the next few years. Research firm Gartner forecasts that figure will grow to $368 by 2018.
But new technologies, such as hybrids, electric cars, and driverless cars, require a lot more high-tech chips. For example, a hybrid electric car today contains about $600 worth of semiconductors.
Driverless car tech is just starting to find its way into new car models. Semiconductor Manufacturing and Design estimates that partial automation will add another $100 worth of chips to an auto. A partially automated car can control and combine at least two primary functions, such as cruise control and lane centering.
High automation will add $400. A highly automated car will be able to drive itself most of the time, with a human taking control only when needed. Full automation will add $550 and describes a car that requires no human intervention other than a destination.
Driverless tech growth definitely has the attention of the semiconductor industry. Chipmakers see rising tech demand from the auto industry as a way to compensate for slowing growth in the PC and smartphone markets.
It was a major factor in NXP Semiconductors NV's (Nasdaq: NXPI) decision to buy Freescale Semiconductor Ltd. (NYSE: FSL) for $11.86 billion in a deal that closed yesterday (Monday).
With Freescale on board, NXP's auto-related sales will double to 40% of total revenue. It also makes NXP the No.1 supplier of automotive-related chips in the world, vaulting it ahead of Tokyo-based Renesas Electronics Corp. (OTCMKTS: RNECY).
But NXP is just one of several driverless car stocks that will cash in on this trend. Here's the rest of the list...
7 Driverless Car Stocks Worth Watching
Chipmakers dominate the list of driverless car stocks, but a couple of other tech suppliers will also benefit.
Keep an eye on these driverless car stocks:
- Atmel Corp. (Nasdaq: ATML): German-based Dialog Semiconductor Plc. (ETR: DLG) agreed to buy ATML in September for $4.6 billion. Dialog specifically bought San Jose, Calif.-based Atmel for its auto chip technology. When the deal closes next year, holders of ATML stock will receive $4.65 in cash and 0.112 of a Dialog American Depository Share set at Dialog's Sept. 18 closing price. From that point, Dialog will have an ADR stock on one of the U.S. exchanges.
- STMicroelectronics NV (NYSE ADR: STM): STMicro is one of the four top chipmakers involved in the auto business, which has provided STM with needed growth in 2015.
- Intel Corp. (Nasdaq: INTC): One of the reasons Intel bought Altera was for its auto chip technology. Like the Internet of Things and wearable tech, this is an area of semiconductor growth Intel needs to counteract its drooping PC business.
- NVIDIA Corp. (Nasdaq: NVDA): NVIDIA saw the opportunity in driverless cars early and has devoted substantial resources to it. In fact, in his presentation at January's CES show, NVIDIA CEO Jen-Hsun Huang talked of nothing else. The company already sells the majority of its Tegra X1 chips to the auto industry.
- Mobileye NV (NYSE: MBLY): One of last year's top IPOs is also one of the most promising driverless car stocks. Mobileye's technology uses cameras and sophisticated software to identify lanes and road hazards. RBC Capital markets has forecast that MBLY will experience a compound annual growth rate of 50% through 2020.
- Delphi Automotive Plc. (NYSE: DLPH): Yes, this venerable auto parts supplier has branched into driverless car tech. Delphi actually developed its own driverless car system. And it works pretty well. Delphi loaded it onto an Audi SQ5 and sent it 3,400 miles across the United States. The company hopes to sell the system to automakers.
- Autoliv Inc. (NYSE: ALV): Based in Sweden, Autoliv is the biggest supplier of auto safety systems in the world, so driverless car tech was a natural fit. Autoliv has partnered with Volvo on a driverless car demo project for 2017 for 100 commuters in the city of Gothenburg. The company's years of auto safety research has given them a lot of intellectual property - another possible avenue for profits via licensing.
How the Fed Killed the Housing Market: Don't believe the headlines - there is no housing recovery in the United States. In fact, the Fed's disastrous zero-interest-rate policy has all but decimated the single-family housing industry. These five charts illustrate exactly how damaging that monetary policy has been...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Follow me on Twitter @DavidGZeiler or like Money Morning on Facebook.
Related Articles:
- The Wall Street Journal: NXP Semiconductor Bets $12 Billion on Smarter Cars
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.