Intro: the inevitability of self-driving cars
The hype surrounding self-driving cars has escalated exponentially in the past few years. Almost all major car manufacturers have incorporated some form of automated driving to their cars, whether it is cruise control, self-parking or automated braking. Based on current trends, it is clear that self-driving cars are an inevitability. It is only a matter of time before self-driving cars match the high safety standards of Mark Rosekind, head of the National Highway Traffic Safety Administration (NHTSA). Just two weeks ago, he claimed that they need to be two times safer before legislations allowing self-driving cars will pass. However, there is no question that those standards will be reached and some estimate that there will be 10 million self-driving cars by 2020.
Why Nvidia can go unnoticed
Three of the top automotive companies that possess self-driving cars are Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Mercedes-Benz and Audi (AUDVX). Naturally, those are also the first names that pop into people's heads when confronted with the question, "What are the biggest companies in the driverless car industry?" However, one of the fastest-growing companies in the field is not one of those household names - it's NVIDIA (Nvidia) (NASDAQ:NVDA), a company that started out by making design graphic processing units for the gaming market.
The widespread integration of Nvidia's pivotal tech
Last year, Nvidia created the Tegra X1, which was the most advanced mobile processor at the time. They partnered with Tesla's (NASDAQ:TSLA) Model X to create an impeccable infotainment system. It was used to process everything ranging from navigation to air filtration. Over the past few years, as Google got all the credit for being the pioneer of self-driving cars, Nvidia's Tegra processors played a vital role in powering Google's cars. As of February, the company had 20-25 million cars in the world use Nvidia's processors.
New tech and innovation by Nvidia
Earlier in January, Nvidia came out with Drive PX2, which is the world's first in-car artificial intelligence supercomputer. The company claims that the platform can process 24 trillion deep learning operations every second. While that might initially seem like an obscene amount of processing power for a car, bear in mind that autonomous cars require a platform of countless sensors, cameras, lidars and radars that give the car the same situational awareness as a human. Considering the current safety of driverless cars, Nvidia is striving for superhuman levels of situational awareness, and they are not far away. Pairing Drive PX2 with Nvidia's DriveWorks, the software used to run Drive PX2, a deep neural network (DNN) is formed. Traditionally, autonomous vehicles have relied on manually-coded algorithms to obtain vehicular control. Upon experimenting with DNN, Nvidia has now released a demo video of a car being able to navigate on suburban roads, busy streets and on the freeway in the snow, after only a few days of training the DNN.
Nvidia Vs. Mobileye
Even though Nvidia currently has 21 partners including big names like Tesla, BMW, Audi and Mercedes-Benz, all companies that are major players in the sector of self-driving cars, this does not mean that they have no competitors. Their main competitor, Mobileye (NYSE:MBLY), unveiled plans earlier in May for the development of EyeQ5, which will be their most powerful processor to date. Assuming they are successful, the processor will be 8 times more powerful than the EyeQ4, while consuming less than 5W of power. While that sounds impressive, they have not shown the creativity and innovation of Nvidia in terms of looking into the future. Much of their planned developments on the EyeQ5 hinges on automated vehicles needing incredibly powerful processors (which they do). However, in creating the most powerful processors, they have turned a blind eye to creative solutions as showcased through Nvidia's experimental DNN. There is one aspect of self-driving cars that Mobileye has an edge on Nvidia and that is user-generated mapping data. However, that is an area that Nvidia simply does not have much interest in. In addition, Mobileye is also competing against mapping conglomerates like Google and Tesla, making its market share small.
Why I'm bullish on Nvidia
Looking back at the stock market over the past 12 months, Mobileye's stock has dropped 26%, and Nvidia's stock has risen 113%. However, key statistics and financials seem to reveal that Mobileye would be a better investment than Nvidia in the long run. For example, estimates from Yahoo! Finance reveal that Nvidia's sales growth for the current quarter is 17.30%, and will be 11.50% by next year. On the other hand, Mobileye's estimate for this quarter is 47.00% and 40.80% by next year. This shows that Mobileye's sales growth will likely be higher than Nvidia's in the long term. However, Nvidia is also a much larger company, meaning that it will be significantly more difficult for Nvidia to achieve the same growth rates as smaller companies like Mobileye. Mobileye's size is also the reason that makes it an unattractive stock. Mobileye has a trailing P/E of 119.41 and a forward P/E of 38.30. Even though Mobileye is a tech company (which generally means a greater P/E difference) and its high growth rate might justify its high trailing P/E, it suffers from stiff competition presented by large powerhouses like Nvidia. Therefore, if Mobileye gives up margins to preserve its market share, they will also be losing profits, which will result in falling stocks. On the other hand, Nvidia's trailing P/E is 40.58 and forward P/E is 29.73. This reflects a much more stable company that is still generating significant revenue. Nvidia's revenue estimates also increase 314% from $1.35 billion in the current quarter to $5.59 billion by next year. This does not fall far from Mobileye's estimated 337% increase from $77.64 million to $339.07 million. Evidence from revenue estimates and trailing P/E suggests that Mobileye's stock might be significantly overvalued. Another additional reason why some users at Peeptrade are bullish towards Nvidia is due to the fact that Nvidia's processors are not part of their core sales, unlike Mobileye. Gaming chips still account for 56% of Nvidia's total sales, and its revenue from gaming chip units increased by more than 35% last year.
Therefore, due to Nvidia's constant innovation, creativity and diversified profitable products, it might turn out to be a great addition to an investor's portfolio.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.