Autonomous cars represent the pinnacle of smartness. “Our cars are like semi-sentient robots on wheels,” said Tesla(TSLA) CEO Elon Musk at his company’s artificial intelligence event in August. Tesla was showing off how intelligent its cars are becoming, and the company is spending millions to develop autonomous driving features faster than its competition.
Every auto maker is in the race to develop smart, self-driving cars. Ford Motor(F) calls its autonomous driving system Blue Cruise. Chinese EV maker NIO(NIO) calls its system NAD, short for NIO autonomous driving. And NIO’s supercomputer, which it calls the brain of NAD, is dubbed ADAM.
Those systems and computers use components from countless suppliers. “Smartcars are set to turbocharge demand in the technology space,” wrote Citigroup analyst Arthur Lai in a Wednesday report. “By 2030, we expect technology content to be 50% by value of a typical smartcar.” He envisions tech sales into the car industry exceeding sales to the smartphone industry by the middle of this decade. It’s becoming a $1 trillion annual opportunity for smartcar suppliers.
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That’s a new source of growing demand for some tech companies in several sectors. In microchips, Citi highlights:Cree (CREE), Infineon Technologies(IFFNY), KLA(KLAC) and Nvidia(NVDA). In tech hardware, Citi likes precision motor maker Nidec(NJDCY) and Sunny Optical(SOTGY). In addition, Corning(GLW), Lens Technology(30422.China) and LG Display(LPL) can benefit as car interfaces inside the cabin get more complex.
Not all of those companies have significant trading volume in the U.S. And not all are beloved by Wall Street analysts. But Nvidia, Corning, and LG Display look to have the right mix of analyst support, size, and volume.
More than 80% of analysts covering Nvidia stock rate shares Buy. The average Buy-rating ratio for stocks in theS&P 500 is about 55%. Nvidia makes graphics processing chips required to help self-driving cars see. It looks to be a stock for growth investors. Shares trade at about 49 times estimated 2022 earnings. Per-share-earnings are expected to grow at about 36% a year on average for the coming two years, far faster than the 10% average annual growth rate of earnings for theS&P 500.
Corning and LG Display look to be stocks for value investors. Shares trade for 16 times and 8 times estimated 2022 earnings, respectively, a discount to the 21 times multiple of the S&P. Corning per-share-earnings are expected to grow at about 12% a year on average for the coming two years. LG Display earnings, however, are expected to fall about 13% a year on average between 2021 and 2023.
About 65% of analysts covering the stocks rate both Corning and LG Display rate shares Buy.
Cree, meanwhile, looks to be the most controversial call, and perhaps one for contrarian investors. The company makes silicon carbide for microchips and power switches for EVs, among other products. Only about 30% of analysts covering that stock rate shares Buy. Net income is expected to move from losses to profits over the coming two years.
Those are four options for different kinds of investors. If those don’t appeal to some, one thing remains certain: The smartcar trend will provide investors with many options to evaluate for years to come.
Write to Al Root at allen.root@dowjones.com
