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Just a few years ago driverless cars seemed like a far-fetched idea. No longer. The driverless car spending wars are heating up, with both technology companies and automakers committing significant sums to this endeavor, both in internal research and development and by acquiring technology-focused start-ups.
While the potential rewards are high, so are the risks. With that in mind, we asked three Motley Fool contributors what stocks are poised to truly profit from the driverless car revolution. Read on why Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), NXP Semiconductors (NASDAQ: NXPI), and NVIDIA (NASDAQ: NVDA) are in pole position.
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Alphabet is way mo ahead of the competition
Jamal Carnette, CFA (Alphabet): It's been a rough three months for technology stocks and Alphabet is no different, with C shares (GOOG) down approximately 15% during this time frame. Investors were skittish about the company's third-quarter earnings -- Alphabet crushed earnings estimates (ex-European Commission fine) but finished light on the top line.
However, a new revenue source may be coming online before year-end. Alphabet's Waymo appears to be in the lead in the autonomous car race with an autonomous car shuttle service launch in the Phoenix area before year-end. Let me be clear: This is not a pilot program. Alphabet's driverless cars are moving into the monetization phase and competing directly with Uber and Lyft.
Clearly this new revenue source is not without risks, headline and regulatory being chief among them. Both Uber's autonomous and Tesla's autopilot systems faced a raft of negative headlines when their autonomous vehicle systems were blamed for human fatalities. In the short term, any negative outcome -- no matter the severity -- will be heavily scrutinized.
In the end, however, these concerns will eventually ameliorate as the benefits of this new technology become apparent. If you feel that driverless cars will be the next big thing, it's clear that Alphabet needs to be on your radar.
The biggest automotive chipmaker in the world
Leo Sun (NXP Semiconductors): NXP is the world's largest maker of automotive chips, and its BlueBox platform converts traditional vehicles into driverless ones. Qualcomm was willing to pay $44 billion, or $127.50 per share, to buy NXP earlier this year -- but the deal collapsed and NXP's stock now trades at about $80. That decline was exacerbated by a cyclical slowdown across the semiconductor market.
Yet NXP continues to generate steady growth. Its revenue, which remained positive over the past four quarters, rose 2% annually to $2.45 billion last quarter. It posted positive growth across three of its core businesses (automotive, secure connected devices, and secure interface and infrastructure), which was only slightly offset by a decline in its secure identification solutions unit.