A lot of auto companies and tech companies think that within the next decade, the public roads will have driverless cars. Boston Consulting Group conducted a research, which estimated the driverless car market including cars, and the technologies in the cars to worth about $42 Billion by the year 2025.
Forecasts like these have made the market for driverless cars a booming one for the speculators. Due to this, many of the industry’s top stocks have gone up.
The rapidly growing automotive chip business by NVIDIA for driverless and connected cars has grown 220% in the past 12 months now trades at almost 40 times the earnings. Mobileye, providing the collision detection systems for most of the automakers in the world rallying over 40% in the 12 months trades at about 114 times the earnings.
Investors who are conservative might go towards these higher valuations but there are a lot of cheaper ways to expose yourself to this highly growing market. The two companies that are undervalued are Ford and Qualcomm, trading at very low multiples but might reap a lot of gains from the autonomous vehicle growth.
Ford has also invested a lot in this market in past two years. In 2015, a $4.5 Billion investment was announced by the automaker into autonomous and electric vehicles by 2020.
In 2016, Ford declared that they would mass produce millions of driverless cars and would use them in a ride hailing operation by the year 2021. Israeli startup SAIPS was also acquired for this very reason. They also announced acquisition of San Francisco’s ride hailing service Chariot this month.
Qualcomm, on the other hand, is known for being the biggest chipmaker for mobile in the world but it is in line of becoming the biggest chipmaker for automotive as well if the acquisition of NXP Semiconductors gets approved by the regulators.
Qualcomm is now diversifying their business from mobile and foraying into connected cars, wearables, IoT gadgets, and drones. In 2015, it acquired CSR to gain both the markets and offered $47 billion to NXP in 2016. If this deal closes, Qualcomm would boost their serviceable addressable markets by 40% in 2020. But the stock of this company underperformed with only 9% gain in 12 months. Although, the stock having P/E of 17 is a fairly cheap way to get into driverless and connected cars.
Ford and Qualcomm stocks are really low as they face near term challenges. These headwinds could easily drive their stocks lower therefore investors should clearly understand the risk involved. But, if investors are really interested in the driverless car market, then they should keep a close eye on both the stocks, as they are cheaper than most of the stocks in this market and are still promising.