3 under-the-radar automotive tech stocks to watch in 2022
With the internal combustion engine no longer the only power option, the vehicle is completely redesigned. Dozens of EV maker start-ups seemed to be taking advantage of this coming sea change. But a slew of new auto parts makers and service providers are also emerging to help meet the need for automotive technology, and many of them could be even more profitable investments than the automakers themselves.
Two small automotive tech companies investors should watch are Light Technologies (NASDAQ: LAZR) and Ambarella (NASDAQ:AMBA). Additionally, the tech giant Qualcomm (NASDAQ: QCOM) has quietly built its presence in the automotive space and looks like a great buy right now.
Luminar Technologies: Crawl Toward A Viable Autonomous Vehicle Business
Lidar tech specialist Luminar was off to the races after its late 2020 IPO, but the stock has spent much of 2021 in steady decline as investors’ excessive early optimism gradually dissipated. . Lidar (which stands for “light detection and ranging”) uses lasers to help a vehicle “see” its surroundings, and could feature prominently in systems that will eventually enable fully self-driving cars. But for now, Luminar is a start-up that is working hard to develop its products and strike deals with automotive suppliers.
Financial statements tell the story right now. In the third quarter of 2021, Luminar’s revenue was just $8 million and it posted an adjusted net loss of $36 million. On its balance sheet, the company had $129 million in cash and another $416 million in short-term investments. So she has a few years of cash to cover her losses as she tries to become a viable business. But at this point, valued at a market cap of $5.8 billion, Luminar is a high-risk investment.
So why keep tabs on Luminar? Although I’m not ready to buy the stock just yet, the company is making rapid progress as automakers begin integrating lidar technology into their advanced driver assistance systems (ADAS). Last quarter revenue increased 89% year over year. And it was recently announced that Nvidia (NASDAQ: NVDA) had selected Luminar’s lidar sensors to integrate the Nvidia DRIVE Hyperion Autonomous Vehicle Platform, an integrated suite of computers and sensors that automakers can use to provide their vehicles with autonomous driving capabilities. DRIVE Hyperion will go into production for 2024 model year cars.
Thus, Luminar is on track to become a viable automotive supplier business within the next two years. Investors will have to be patient here, as a lot of hype is still tied to the stock. Nevertheless, this small company is full of promise if it can continue to advance its lidar technology.
Ambarella: computer vision is already underway
Computer vision is an entirely different type of technology that helps enable autonomous vehicles. It uses digital cameras to capture video, which is processed by high-end system-on-chip hardware and artificial intelligence software to allow vehicles to navigate the roads safely. Ambarella specializes in the design of these image processing chips.
Computer vision is already used in some ADAS platforms, including You’re hereit is (NASDAQ: TSLA) self-driving system – as well as in other devices like security cameras. But Ambarella is still early in the process of developing hardware for the most advanced systems that will gradually unlock more autonomous cars — and eventually, ones that don’t require human intervention. However, its financial results are already benefiting from it. In the first nine months of 2021, revenue grew 50% year-over-year to $242 million.
As more automakers use Ambarella’s technology in the coming years, its currently small sales base could expand dramatically. (Major semiconductor companies report billions of dollars in annual revenue.) This rosy thesis is currently priced into the stock price. Even after falling more than 30% in recent months, Ambarella is trading at more than 19 times its last 12 months sales and nearly 120 times its adjusted net profit. (Most of the company’s excess cash is currently spent on research and development.)
Considering the high price, I would tread very lightly with this semiconductor stock at this time. Nevertheless, Ambarella could be a major player in automotive technology in the coming decade. It is subject to wide price fluctuations, so keep this stock on your list of downside buy candidates.
Qualcomm: the next frontier of mobility
Almost every smartphone on the planet contains an electronic element designed by Qualcomm. During the 2000s and 2010s, Qualcomm’s chips helped fuel the rise of computing mobility from smartphones and telecommunications services. In recent years the industry has matured and this semiconductor stock has become more of a value game.
But Qualcomm is steadily preparing for the next wave of mobile computing, and it has the modern car squarely in its sights. In fact, in its 2021 fiscal year, which ended September 26, Qualcomm reported $975 million in sales to the auto industry. For the perspective, this was only about 3% of the company’s total revenue. However, that was a 51% year-on-year increase, and with new cars coming with everything from ADAS features to mobile network connectivity, Qualcomm thinks big things could be in store for it. reserved in this segment.
To that end, Qualcomm recently reached an agreement to acquire the automotive software segment of the automotive technology provider. Veoneer (NYSE:VNE), probably in order to facilitate the implementation of its mobile hardware. And at CES 2022 this month, Qualcomm discussed its current capabilities and future plans for the “software-defined vehicle” – features that cover continuous connectivity and monitoring, ADAS processors, in-cabin infotainment and a cloud platform that will make vehicle software updates easier.
Qualcomm already has a leading ecosystem for smartphone makers, and its expansion into the automotive world is well underway. The company expects to grow at a healthy pace and projects that its total addressable market will grow at an average percentage rate among teens over the next few years. Trading at 24.5 times trailing 12-month free cash flow at the time of writing, Qualcomm looks like a great under-the-radar way to invest in the continued advancement of automotive technology.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.