How to Invest in Self-Driving Car Stocks
Investing in plain old car stocks too boring for you? We have just the thing for you. Why not invest in self-driving car stocks and take advantage of one of the premier innovations in recent technology?
But before you dive head first into something completely out of your control (quite literally), let’s take a look at what exactly a self-driving car is. And why the technology may prove to be a lucrative investment for you.
What Is a Self-Driving Car?
A self-driving car (or autonomous vehicle, or driverless car) is a vehicle that can safely drive from place to place with full automation. Literally no human interaction or intervention is needed to get the car safely from point A to point B. The person in the driver’s seat could actually read a book, watch a film, or take a nap. It wouldn’t matter.
Sounds too good to be true or like a science fiction movie? Amazingly, breakthroughs in related technology such as artificial intelligence and the internet of things make autonomous vehicles a reality. Or at least, they will be much more of a reality in very short order.
Let’s break down further what, exactly, goes into driverless car technology.
Components of Self-Driving Technology
The task of autonomous driving is accomplished with a combination of hardware and software. It also requires sensors in order for the car to understand its environment. Here’s how these three components work together:
- Hardware – Computers make the world go round. They also make the wheels on driverless cars go round. And for that, you need a great deal of computing power. One of the most important parts of the hardware system is the graphics processing unit (GPU).
GPUs are important for a wide variety of innovative technological breakthroughs. This includes things like the internet-of-things and virtual reality. Companies like Nvidia are major players in the graphics processing unit space.
Other special hardware in addition to the GPUs are often needed as well.
- Software – Hardware is important, but it doesn’t do much without some software. Hence, driverless cars need programs to run. Most often this includes some form of artificial intelligence (AI) software such as machine learning, neural networks or deep learning.
- Sensors – Finally, self-driving cars need sensors in order to fully understand their environment. These sensors include cameras and radar units. They also often include a device called lidar. Lidar is an innovation that enables very precise imaging of a car’s surroundings using invisible lasers.
As you can see, there are different ways to play self-driving car stocks. You can focus on any of these three components or some combination of the technologies. Investing in these different technologies can also help you gain exposure in areas such as artificial intelligence, the internet of things, and graphics processing.
If you’re interested in investing in autonomous driving technology, we recommend that you keep your eye on these four stocks:
Self-Driving Car Stocks to Watch
- Tesla – You may have noticed that an increasing number of Teslas are everywhere on the road. There’s reason to think that this won’t change when autonomous vehicles take over. In November, Tesla (Nasdaq: TSLA) introduced a new feature in its electric vehicles called “Navigate on Autopilot”. Using a type of artificial intelligence known as neural networks, the vehicle automatically suggests when to change lanes and, if given permission by the person driving, can complete the task on its own. There are other automated features as well, such as the handling of highway interchanges and exits.
The Palo Alto based automotive and energy company is famous for its electric vehicles. The stock recently crossed the $500 threshold after falling as low as $176 over the last year. Revenue took a 7% dip and net income fell by more than half in the quarter three of 2019. But investors have been rather bullish on the stock since October.
- Nvidia – As mentioned above, you can’t have autonomous vehicles without the right hardware. Nvidia (Nasdaq: NVDA) is one of the most important manufacturers of the GPUs required by most driverless technologies. So, Nvidia is a good bet to become more important when driverless tech takes off. Nvidia is working on artificial intelligence-based cockpit infotainment systems in addition to more integral driverless car technologies.
Nvidia’s stock had a rough go of it in 2018. But lately it’s been flying high. Since a low in June, the stock has climbed from $131 to right around $250 where it’s trading today for a gain of over 90% during that period. It’s quarter three net income came in just under $900 million dollars, yielding a diluted earnings per share (EPS) of 1.45.
- General Motors – General Motors’ (NYSE: GM) self-driving car unit is called Cruise and it could mean big things in the future. The vehicles are built by GM at a dedicated plant for the Cruise autonomous car service.
There was a snag hit, however. In the summer of 2019, Cruise Chief Executive Officer Dan Amman announced that the company was delaying the commercial deployment of its self driving cars. Instead, the company would continue testing the driverless cars until it felt they were ready to begin serving the public.
But Cruise, which has raised over $7 billion in capital from investors including SoftBank in just the last year alone, is still a good bet to play an important role in the future of autonomous vehicles. So don’t count them out yet.
The past year hasn’t been going so well for General Motors’ stock in general. The stock is down nearly 17% from its 52-week high of $41.90 and is now trading around $35. While this is a reason to be cautious, betting on the rise of Cruise may still be a solid long-term play in self-driving car stocks.
- Google – Google (Nasdaq: GOOG) subsidiary Waymo began its life as the Google Self Driving Car Project a decade ago. And as an early mover into the autonomous vehicle space, it now has the only commercial self driving car operation currently active in the United States.
For that reason, many consider Waymo to be the market leader among self driving car stocks (Cruise is second). Analysts have valued the company anywhere from $100 to $175 billion. It could be worth more, with plans to expand around the globe. Its fleet of self-driving taxis consists of about 600 cars in the Phoenix area at present. It does still come with a trained driver in case there is a need for them to take over from the self driving technology. So the cars aren’t fully autonomous yet.
Nevertheless, Google is a great play in this space as the company looks to open a new 85,000 square foot technical service center in the Phoenix area. Google has been strong as ever with the stock climbing from a low of $1,025 to a share price of around $1,400 today. That’s a return of approximately 37%. With a diluted earnings per share (EPS) of $10.12 as of September, 2019, look for the search engine mammoths of Mountain View, California to continue to be a force to be reckoned with.
Final Thoughts on Self-Driving Car Stocks
Sometimes it’s hard to believe the technology that exists in the present age. Almost like a dream. And while self-driving car technology may seem like just a dream, it’s become very real, very fast.
The perfect time to invest in the technology is now before these companies really take off. So do your homework and decide which of these self-driving car stocks may be right for your portfolio.
About Brian M. Reiser
Brian M. Reiser has a Bachelor of Science degree in Management with a concentration in finance from the School of Management at Binghamton University.
He also holds a B.A. in philosophy from Columbia University and an M.A. in philosophy from the University of South Florida.
His primary interests at Investment U include personal finance, debt, tech stocks and more.