Mobileye (MBLY -0.69%) went public again on Oct. 26 after spending the past five years as a subsidiary of Intel (INTC -1.12%). The Israeli developer of advanced driver assistance systems (ADAS) and computer vision chips listed its shares at $21, and its stock started trading at $28.25. But is its stock a worthwhile investment in this tough market for chip stocks?

What does Mobileye do?

Mobileye controls about 70% of the ADAS market. These systems use sensors and cameras to detect hazards while driving and parking a vehicle. They can also be used to adjust a vehicle's speed with adaptive cruise control, keep it centered in a single lane, monitor tire pressure, track blind spots, and even analyze the driver's eye movements for sleepiness.

A person sits in a driverless car.

Image source: Getty Images.

Mobileye's ADAS platforms run on its own EyeQ computer vision chips. Its current mainstream chip, the fourth-generation EyeQ4, was launched in late 2018 to bridge the gap between semi-autonomous and autonomous vehicles. The EyeQ5, which entered mass production last year, is designed for Level 4 and Level 5 autonomous vehicles. Level 4 vehicles can drive themselves with limited human intervention, while Level 5 vehicles (which don't exist yet) will be fully automated.

Why did Intel spin off Mobileye?

Intel bought Mobileye in 2017 to diversify its business away from x86 CPUs for PCs and data centers while increasing its exposure to the growing market for automotive chips. Mobileye had lost Tesla as a major customer the previous year, and it faced growing competition from other chipmakers like Nvidia (NVDA 0.64%) and Qualcomm (QCOM 1.56%) -- so it likely preferred to be bought out by a major chipmaker like Intel than to endure those challenges on its own.

But over the past five years, Intel has struggled with chip shortages, product delays, and jarring CEO changes as it fell behind TSMC in the "process race" to create smaller and denser chips. That pressure forced it to streamline its business, focus on strengthening its core x86 CPU business, and start divesting its non-core assets. Faced with these challenges, it made sense for Intel to spin off Mobileye in a new IPO to raise some fresh cash.

How fast is the "new" Mobileye growing?

Mobileye's growth in revenues and EyeQ system-on-chips (SoCs) cooled off in 2020 as the pandemic disrupted the automotive industry, but its business recovered quickly in 2021 as those headwinds dissipated. Its adjusted net income also continued to grow at an impressive rate.

Metric

First six months of 2022

2021

2020

Revenue

$854 million

$1.4 billion

$967 million

Growth (YOY)

21%

43%

10%

SoC Shipments

15.9 million

28.1 million

19.7 million

Growth (YOY)

10%

43%

13%

Adjusted Net Income

$276 million

$474 million

$289 million

Growth (YOY)

2%

64%

467%

Data source: Mobileye S-1 filing. YOY = Year over year.

Mobileye's growth decelerated this year against those year-over-year comparisons, and that slowdown was exacerbated by "continuing supply chain constraints" at its manufacturing partner STMicroelectronics (STM -2.57%). Mobileye says those constraints are preventing it from satisfying the market's demand for new EyeQ SoCs. To avoid facing similar constraints in the future, Mobileye plans to "build up inventories of EyeQ SoCs" with "substantial amounts of capital."

Those statements suggest that Mobileye's near-term revenue growth will cool off as its expenses increase. That's a bit troubling since Mobileye is still unprofitable on a generally accepted accounting principles (GAAP) basis. Its net loss narrowed from $196 million in 2020 to $75 million in 2021 but widened again to $67 million in the first half of 2022.

But there's still plenty of pent-up demand for Mobileye's chips. Based on its existing design wins, it expects its ADAS solutions to be deployed in "more than an additional 266 million vehicles by 2030." So once Mobileye resolves its current supply chain challenges, it should continue to expand as more connected and autonomous vehicles hit the market.

Is Mobileye cheap enough to buy?

Intel initially planned to spin off Mobileye with a valuation of about $50 billion. But the tough market forced Intel to reduce its target valuation to just $17 billion, compared to the $15 billion it originally paid for the company.

Mobileye is now worth $21.5 billion. If it grows its revenue by 25% to $1.75 billion this year (Intel's latest report indicates Mobileye's revenue rose 27% year over year in the first nine months of 2022), it will trade at 12 times that estimate. Nvidia, which will grow at a much slower rate this year as the PC market cools off, trades at 13 times this year's sales.

Mobileye isn't terribly expensive, but it also isn't a screaming bargain yet. I personally believe investors should wait for Mobileye to post its first few quarterly reports instead of eagerly buying its newly minted shares.