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Better Driverless Car Stock: Mobileye NV or NVIDIA Corporation?

By Leo Sun - May 22, 2016 at 2:41PM

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Mobileye and NVIDIA are both invested in driverless cars, but which is the better long-term investment?

Driverless cars could hit public roads within the next decade, according to most tech and auto industry forecasts. That mainstream growth could turn the driverless car market into a $42 billion industry by 2025, according to research company Boston Consulting Group.

Many investors have probably seen Alphabet's Google driverless car before, but they may be unfamiliar with the components that power such autonomous vehicles.

Google's driverless car. Image source: Google.

Let's check out two companies that make those components -- Mobileye (MBLY) and NVIDIA (NVDA -6.30%) -- and see which company will profit more from the growth of driverless vehicles.

What does Mobileye do?

Mobileye uses cameras, radar, and computer vision chips to automatically detect obstacles on the road and hit the brakes accordingly. Its system can also detect the edge of lanes to cruise within a single lane without manual steering. Around 90% of the world's top automakers use Mobileye's systems in their advanced driver assistance systems (ADAS).

Mobileye's ADAS solutions aren't fully autonomous, but they're much cheaper than the LIDAR systems in Google's vehicles, which currently cost between $8,000 to $30,000. Google's vehicles also only work on roads that the company has mapped in "high detail" to account for signs, obstacles, and other obstructions.

Earlier this year, Mobileye unveiled its own plans to capture and build similar mapping data with its sensors. The company plans to install the technology, which will crowdsource data from all of its vehicles into a collective mapping database, into over 270 vehicle models this year.

Mobileye's EyeQ1 automotive vision SoC. Image source: Mobileye.

Mobileye also recently announced that the next generation of its automotive vision SoC, the EyeQ5, will "act as the central computer performing sensor fusion for fully autonomous driving (FAD) vehicles starting in 2020." Mobileye claims the chipset, which is being developed with longtime partner STMicroelectronics, will deliver eight times the performance of the new EyeQ4 (which will start mass production in 2018) while consuming less than 5W of power. Tesla's "autopilot" feature is notably powered by Mobileye's current-generation EyeQ3 SoC.

What does NVIDIA do?

NVIDIA makes most of its money from sales of GPUs. However, the company also generated $160 million, or 12% of its revenue, from sales of Tegra processors last quarter.

NVIDIA originally designed Tegra chips to compete against Qualcomm in the smartphone and tablet markets. But after failing to dent those markets, NVIDIA pivoted Tegra toward the automotive market to power in-vehicle infotainment systems. Robust demand from that market boosted its automotive revenues 47% annually to $113 million last quarter and accounted for over 70% of all Tegra chip sales.

NVIDIA is building upon that success with new end-to-end computing platforms for autonomous cars, such as its Drive PX and Drive CX car computers, DGX-1 deep learning platform, Driveworks SDK for autonomous cars, and an end-to-end mapping platform for autonomous vehicles. Those solutions also tether vehicles to NVIDIA's Tesla and GRID chips for data centers.

The program currently has 21 partners, including Tesla, BMW, Audi, and Mercedes-Benz. In February, NVIDIA-powered WEpods became the first self-driving shuttles to be driven on public streets.

NVIDIA-powered WEpods. Image source: NVIDIA.

NVIDIA's new platforms will pit its Tegra chips against Mobileye's EyeQ chips, as well as other new rivals like Qualcomm's Snapdragon A chips. However, NVIDIA has a head start against Qualcomm in this market, and its growing list of partners indicates that automakers have confidence in its Tegra-powered Drive platforms.

But which company is a better investment?

At first glance, Mobileye's year-over-year growth numbers from its most recent quarter look much more impressive than NVIDIA's.

 

Revenue Growth

Non-GAAP Net Income Growth

GAAP Net Income Growth

Mobileye

65%

92%

117%

NVIDIA

13%

41%

46%

Data source: Quarterly earnings reports, YOY growth.

Looking ahead, analysts expect Mobileye's revenue to grow 41% this year, and for its earnings to rise 44%. NVIDIA is expected to post 11% sales growth and 47% earnings growth this year. But the key thing to remember is that Mobileye is a much smaller company than NVIDIA, so higher growth is expected.

That reveals Mobileye's biggest weakness -- its valuation. Its trailing P/E of 106 and a forward P/E of 34 look somewhat justified by its earnings growth, but rising competition from chipmaking heavyweights NVIDIA and Qualcomm is worrisome. If Mobileye sacrifices margins to preserve market share against those rivals, its profitability could suffer, and its stock could tumble. Meanwhile, NVIDIA's trailing P/E of 37 and its forward P/E of 27 are much lower and are supported by its previous growth and forward earnings forecasts.

NVIDIA isn't a pure automotive play like Mobileye, but its lower valuation, more diversified product portfolio, and growing list of automotive partners indicate that it's a better way to invest in the driverless market.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Qualcomm. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Nvidia, Qualcomm, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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