Share prices of Mobileye Global (MBLY -2.42%) are on a tear since they made their debut (again) late in 2022. Parent company Intel (INTC -2.40%) spun off some of its stake in the autonomous vehicle chip designer into a publicly traded company to raise much-needed cash last year, but it said it still owns 94% of the company.
Intel's own tires have been blown out, and there's no immediate relief in sight. Mobileye, meanwhile, was a standout performer for Intel in 2022. With some shares freed from Intel and available for purchase, is Mobileye a worthy investment for 2023 and beyond?
Navigating a treacherous road with an imperfect copilot
Before addressing Mobileye's business directly, we need some chip industry backstory. The semiconductor industry is presently dealing with a slump in sales emanating from a severe dropoff in consumer electronic sales (particularly PCs and laptops). While the market for data center and other enterprise chips is still strong, Intel is in especially sore straits as it has fallen far behind its competitors. It's forecasting a 40% year-over-year decline in revenue to kick off 2023, and it will operate at a steep loss even though that 40% decline should still equate to about $11 billion in quarterly sales.
The majority of Intel's business is seeing yellow flag warnings, but Mobileye is seeing nothing but green. Revenue in 2022 was up 35% to $1.87 billion -- including a 59% year-over-year increase in the fourth quarter to $565 million.
Automotive chips are still zipping along at a fast clip. The chip shortage brought on by the pandemic is finally easing for most markets, but automotive semiconductor manufacturers are reporting they are still fully booked through the rest of 2023 and into 2024. Consumer spending is beginning to wane and could impact auto sales this year, especially if a recession strikes. However, new automotive technology like electric drivetrains and advanced driver assist systems (ADAS) are rapidly increasing the amount of silicon needed per vehicle.
In other words, not even a recession may be enough to knock Mobileye off course. The company is forecasting revenue to be in a range of $2.19 billion to $2.28 billion in 2023, up 20% from 2022 at the midpoint of guidance.
Is Mobileye stock a buy?
The present situation and the long-term secular growth trend influencing the automotive market bode well for Mobileye. But investors, just like those in the market for a new car, have choices here. Mobileye's chips for ADAS and the accompanying software have competition from Qualcomm's fast-growing auto supply segment (up 41% in fiscal 2022 to $1.37 billion). Nvidia not only has an automotive segment, but it also supplies data center hardware on which modern vehicle software is developed and perfected. Nvidia's auto unit revenue (excluding auto technology data center sales) rose 25% over the last 12-month stretch to $734 million.
Chip designers need to remain on the offensive and pour research and development dollars into their chip lineup to remain in pole position, and that's clearly creating some profit margin issues at Mobileye.
The company outperformed expectations in Q4 and generated GAAP net income, as well as positive free cash flow of $435 million in full-year 2022. However, embedded in 2023 guidance was a call for full-year GAAP operating losses of as much as $160 million, though free cash flow is likely to remain healthy and positive once backing out noncash expenses like amortization and employee stock compensation.
Shares trade for nearly 50 times expected adjusted operating profit based on the midpoint of $600 million Mobileye management predicts for 2023. It's not a cheap stock.
But then again, Mobileye thinks it can keep racing ahead at a brisk pace. At the Consumer Electronics Show in Las Vegas in early January 2023, Mobileye CEO Amnon Shashua said his company has a $17 billion ADAS sales pipeline through 2023 and an additional $3.5 billion from various software-based mobility services.
It can be dangerous counting victories before actually crossing the finish line, but clearly, Mobileye trades for a premium valuation for a reason. I'm staying cautious for now given economic uncertainty heading into 2023, but I've also been wrong about Mobileye since its IPO late in 2022. If you are eyeing the very long term (through 2023) and don't mind some wild swings in stock price, Mobileye very well might be the stock for you right now.
