What to Look for When Investing In Autonomous Technology
What to look for when you invest in Autonomous technology
Within the next 10 years, there will be an abundance of autonomous cars on the market. At the Consumer Electronics Show 2019, an annual trade show that happens in Vegas each year, self-driving cars and vehicle technology took up 290K+ net square feet of the total exhibit space. Along with test drives booths, the keynote speech involved Daimler AG’s Chairman, Ola Källenius, introducing the environmental, safety and luxury benefits of autonomous cars and unveiling a beautiful Mercedes-Benz show car based on Avatar.
The array of companies revealing their autonomous vehicle initiatives was not anticipated. In fact, automakers have already jumped on the technology by investing in in-house research and development (R&D) and testing. Major companies like Tesla, BMW, and even Google have already formed relationships with tech suppliers. Though the hype for the Internet of Things technology is big, the market is still extremely uncertain about the future of autonomous cars specifically, with trust and legal issues delaying the timelines of mobilization. Investors may believe that the lack of trial and the high adoption and switching costs for consumers creates a lot of risks. However, that is not the case, here is why.
Why you should invest in autonomous technology
Autonomous technology is already in high commercial use. The use of automated robots by Amazon, for example, demonstrates the wide scope of use of autonomous vehicles for package delivery. Uber, Lyft and Google’s Waymo plan to use autonomous technology for its taxi/ vehicle fleets. A study commissioned by Intel in 2017 predicted that the potential revenue generated by commercial use of autonomous vehicles will reach $800 billion by 2035 and $7 trillion by 2050. Nevertheless, this technology has the potential for healthcare, space exploration, and even biological research.
Which stocks you should look out for
The main drivers of this technology are not car companies, but rather the tech companies that form the components Though high market cap stocks like TSLA and GOOGL seem appealing, they are already highly contested and watched. Rather, one should focus on high growth companies in three sub-industries that are overlooked. These are sensor, software and hardware sectors that relate to the components of self-driving technology. Given that these technologies are still developing, many companies are delaying IPO to figure out their core competencies, or avoid divulging their trade secrets through their financials, and instead relying on private placements. Currently, a risky method is purchasing pre-IPOs through equity fund marketplaces.
Sensors are the eyes of this technology. Many vehicles will use lidar, a type of sensor that uses infrared lasers to make precise images. Lidar is expensive which is the biggest challenge for this fairly developed industry. There are still many undiscovered uses for lidar. When the leading developer, manufacturer and supplier of lidar, Silicon Valley-based company Velodyne, cut the price by half two years ag, They received investments from Ford and Baidu.
Software includes autonomous AI and machine learning algorithms. While there are many AI companies out there, only a few occupy niches in autonomous technology. Companies like Argo AI and Cruise LLC (owned by GM) stand out- others like NuTechnology focus on software for self-driving fleets like Uber or Lyft. Watching partnership and leadership across industries can dictate investment opportunities.
Hardware is a component vital to sustaining the first two sectors. Chip processors are an important hardware component.Leaders in this sector include Intel, which manufactures semiconductors and microchips, and Nvidia, primarily a gaming chip producer. As both these companies are tech-giants be on the lookout for joint ventures, R&D companies, or daughter companies that open up as this industry matures.
There are many players across the value chain
Though it may seem tempting to focus on large vehicle companies with their glamorous autonomous sports cars and vans, the growth stocks will be most prevalent in third-party manufacturers. There is likely to be a high switching cost for existing vehicle manufacturers if they invest in car production, so keep an eye out for companies with a niche in this area. Though General Motors is poised to take over this area, it is too early to determine. Due to a lack of publicity about driverless car research, many investors are not actively taking note of such company movements in a time where it is crucial to do so.
