Sometimes, it’s best to get your information straight from the experts. Needham’s 5-star analyst Rajvindra Gill, an expert in the tech sector, has the lowdown on autonomous cars and the companies that will support them. He was part of Needham’s recent 4th Annual Virtual Automotive Tech Conference, and in a report this week he expounds on the highlights of the event.
The conference focused on the impact of COVID-19 on the advent of Advanced Driver Assistance Systems (ADAS), and featured presentations from and about auto industry reps, semiconductor manufacturers, battery suppliers, software companies – even rideshare companies. Self-driving cars are on the way – the relevant questions are, how soon? and how will the public take to them.
Gill sees the innovation hitting the industry in a series of steps. Level 0 is current non-autonomous, non-assistive manual driving technology (or just ‘cars,’ if you prefer). Moving up, Levels 1 and 2 include various forms of non-autonomous driver assistance – adaptive cruise control, lane drift warnings, and limited vehicle control over speed and/or steering. With Level 3, we start to see driver hands-free capability. Level 4 is full vehicle autonomy within geofenced areas, and Level 5 is unrestricted vehicle autonomy. Clearly, current tech is still perfected Level 3 – but higher levels are both conceivable and, likely, inevitable in the near future.
And full autonomy brings us to AI. Artificial Intelligence is essential for the technology to work, and the companies that enable it are going to find themselves well positioned for takeoff when ADAS Levels 4 and 5 arrive. Gill points out three such companies, all in the semiconductor chip sector, that he gives Buy ratings, saying that investors can get in now on the ground floor. We’ve used the TipRanks database to pull up the details on them.
Microchip Technology (MCHP)
We’ll start with Microchip Technology, a major player in the industry. MCHP is ranked #6 globally by sales share, and boasts a $27 billion market cap. The company is heavily invested in the automotive sector, as its chips are widely used in power management apps and wireless connection devices.
The company’s tech is heavily integrated into electric vehicles, as well as early innovation in Level 4/5 ASAD. Microchip produces SiC MOSFETs and diodes, which are used in electric powertrains and charging systems, while its connectivity chip enable the centralized computing and GPS location systems that will make autonomous vehicles ‘smart.’
Needham's Rajvindra Gill particularly sees Microchip’s moves to micro-PNT as important for autonomous vehicles. This technology will enable cloud-based real-time mapping updates in the ‘urban canyons’ that resist traditional GPS locators. The company is engaged in test projects in three cities, and pending results will move toward the market.
Gill rates MCHP a Buy, and gives the stock a $130 price target, indicating confidence in a 19% upside potential for the coming year. (To watch Gill’s track record, click here)
Overall, Microchip’s Strong Buy analyst consensus rating is based on 20 reviews, which include no fewer than 17 Buys opposed to just 3 Holds. Shares are trading for $97.45, while the average price target of $113.40 suggests a 16% upside potential. (See Microchip stock analysis on TipRanks)
Tower Semiconductor (TSEM)
Next up is Tower Semiconductor, a $2.2 billion fabricator in the chip industry. Fab is the vital segment for semiconductors – it is the actual manufacture of the chips. Tower produces a wide range of chips, used in dozens of applications, for some of the biggest names in the industry. The company’s customers include Broadcom, Intel, and Samsung, perennially among the top 5 in market share.
From Tower’s perspective, the key about the increasing trend to greater autonomy in motor vehicles – and toward electric vehicles – is the ever-increasing share of electronic componentry in the vehicle systems. Tower sees a major opportunity here, as most automotive circuitry is analog, and Tower is a specialized analog chip foundry. TSEM is already heavily invested in automotive applications, and 10% of the company’s 2019 sales went to the car sector. Specifically, TSEM chips and platforms are essential to the image sensors and LiDAR apps that will allow self-driving cars to ‘see,’ while RF tech is used in connectivity and radar applications. EV vehicles depend on TSEM’s power management technology.
In short, Tower has multiple paths toward increased sales and market share, as it will provide the manufacturing capabilities needed to produce the most essential pieces of vehicle AI. With fab facilities in the US, Tower also finds itself in a strong position as markets begin to prioritize US sourcing over Chinese in the wake of the trade war and the coronavirus.
Looking at TSEM’s prospects, Gill backs his Buy rating with a $27 price target. His target shows confidence – it implies a 36% one-year upside potential to the stock. (To watch Gill’s track record, click here)
TSEM shares have 3 recent analyst reviews, breaking down to 2 Buys and 1 Hold, giving the stock a Moderate Buy consensus rating. Shares are affordably priced, at $21.16, and the $24.33 average price target suggests the stock has room for 14% growth in the next 12 months. (See Tower stock analysis on TipRanks)
Nvidia Corporation (NVDA)
Last up on today’s list is Nvidia, one of the best-known names in the semiconductor chip sector. Nvidia’s GPU chips are popular among gamers and graphic designers, and the company’s memory chips are widely used in data centers. As a maker of high-end processors, Nvidia’s connection to AI is obvious.
About 7% of Nvidia’s business is in the automotive sector, and half of that is geared toward ADAS and autonomous vehicle tech. The company produces the DRIVE platform, a fully scalable architecture capable of functioning in the Level 2 ADAS environment or in Level 4 fully autonomous driving. Gill sees Nvidia’s moves toward L2 ADAS as a multi-year opportunity, as it will take time to reach the volumes anticipated. The DRIVE platform allows cloud-car-cloud data transfer, a model that will encourage machine learning at the higher levels of autonomy. It is important to note, as Gill does, that Nvidia’s competitors in the automotive sector are not shy about conducting simulations using NVDA data center tech.
To this end, Gill backs his Buy rating on NVDA with a $400 price target, suggestive of a 14% upside potential. (To watch Gill’s track record, click here)
The Street agrees that NVDA is a buying opportunity. The 31 reviews on this stock include 27 Buys, 3 Holds, and a single Sell, making the consensus view a Strong Buy. NVDA is the most expensive stock on today’s list, trading for $351.85. The average price target here, $379.58, suggests an 8% upside from current levels. (See Nvidia stock-price forecast on TipRanks)
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