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.

Inside of a driverless car cockpit.

Image Source: Getty Images.

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.

NXP's earnings per share of $5.60, which was significantly boosted by Qualcomm's $2 billion termination fee, represented a big jump from its EPS of $0.31 a year earlier. NXP expects flat-to-negative sales growth for the fourth quarter, due to the aforementioned challenges in the semiconductor market, but analysts still expect its revenue and earnings to rise 2% and 6%, respectively, for the full year.

Based on that forecast, NXP trades at just 11 times this year's earnings, and it pays a forward dividend yield of 1.2%. NXP's stock will likely remain under pressure due to industry headwinds, but I think that its downside potential is limited at these prices. Some investors might also consider it a cheaper and more direct driverless play than NVIDIA.

Gloved hand holding a silicon semiconductor chip.

Image Source: Getty Images.

Looking beyond cryptocurrencies

Demitri Kalogeropoulos (NVIDIA): Chipmaker NVIDIA's recent earnings results were marred by a hangover from the cryptocurrency boom, and excess inventory in that division threatens to pinch sales and profit growth over at least the next few quarters. Yet its non-gaming business lines met management's expectations and reflect healthy demand for chips that deliver foundational technology in AI, professional visualization, and data management.

That mixed result has been enough to push the high-flying stock sharply lower in the waning weeks of 2018, even though shares had been up by over 40% as recently as early October. The drop might be enticing enough for investors who have sat on the sidelines as NVIDIA shares rose sevenfold from late 2015 through mid-2018 to take another look at the business over the next few weeks.

The chipmaker has an attractive position across many emerging industries, after all, and its sales and profitability are both expanding today, just not at the breakneck pace that Wall Street had expected. That growth should be supplemented by rising capital returns in the form of dividends and stock repurchase spending.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Demitrios Kalogeropoulos owns shares of Tesla. Jamal Carnette, CFA owns shares of Alphabet (C shares). Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Nvidia, and Tesla. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.