We’re entering a world of robots, a dizzying scene of autonomy with unfamiliar and yet unimagined implications — social, scientific and financial.
As investors attempt to make sense of the tortuous path of driverless vehicles, who better to turn to than technology analyst Gene Munster? The Loup Ventures co-founder offered Benzinga a few tips on how to trade the autonomous vehicle theme.
Draft Round One: Tesla
First, pick Tesla Inc TSLA.
"I think that this company is still very small in terms of its market cap relative to what it can be," Munster said. "I think the mistake the investors make is to try to find somewhere to compare this to a typical automotive company."
But Tesla and competitor Alphabet Inc GOOGL’s Waymo, which Munster said shows promise, aren't typical automakers, and their innovative approaches and emphases on electric vehicles are altogether transforming the industry, leaving the likes of Ford Motor Company F in the dust.
Draft Round Two: Nvidia
And their efforts aren’t unaided. Although pioneering the transformation, Tesla is backed by a mass of emerging components suppliers, whose services are newly relevant to the evolving automobile.
The parts are sundry and go in and out of fashion in what Munster calls a “boom and bust” cycle, making trading components tricky.
But he’s putting his chips on NVIDIA Corporation NVDA.
"Obviously what they are doing around chips and computer vision is critical," he said. "The reason why I mention that is I think it is going to be difficult to displace them. I think of them as Intel Corporation INTC in 1985, and even though they have had a big run, to play a 10- or 20-year kind of a theme."
His thesis stands in spite of a recent short call by Citron Research’s Andrew Left, who urged investors to turn toward the safer bet of Google.
While lauding Google and considering it a positive investment opportunity, Munster ranks it third behind Tesla and Nvidia in the autonomous vehicle play.
"I think it’s easy for people to be negative on Tesla and Nvidia because of the valuation or the initial competition, but I think when you think about the magnitude of these changes, if you believe in this theme that cars are going to be autonomous, these are two great stories to tell," he said, adding that both stocks have a lot higher to go. "All these [Nvidia and Tesla] are going to have these bumps in the road. When you are trading these names it can really rock you, because they're going to be bumpy."
Draft Round Three: BlackBerry
Another critical component is technology enabling vehicle-to-vehicle communication, which the National Highway Traffic Safety Association proposed in December to require in all new vehicles.
To meet suggested requirements, the industry will likely lean on dedicated short-range communication technology reliant on radio signals, Loup Ventures Robotics Industry Adviser Austin Bohlig said. Bohlig pointed to BlackBerry Ltd BBRY's QNX as a preferred secured operating system and the private company of 5D Robotics for transmission hardware.
Similarly, he saw potential among private firms for environment-sensing technologies. As automakers continue to explore LiDAR, radar and 3D camera options, the consensus is gravitating toward LiDAR, for which startups Velodyne and Quanergy lead the pack.
Still, there is room for competitors and innovators to emerge in all three categories.
"In my opinion, I think it is going to be a combination of all three, cameras, radars and LiDARs, because each have their advantages and their disadvantages," Bohlig said.
Rebuff: Insurance Agencies
For every winner in the autonomous trade, there's a loser, and one of the biggest is the auto insurance industry.
As the probability of accidents and claims dramatically decline — tenfold, according to Munster — the cost of insurance will drop, and insurers will find themselves in a "tough spot."
"I think the insurance companies who have a lot of exposure to auto have a lot further to go down," he said, noting that the relevant stocks will rise and fall but ultimately "work themselves lower."
Time Of Play
Munster’s team of venture capitalists consider investments in five-year windows, and as far as they're concerned, there are really no sector indicators or technological milestones signaling when to buy and sell. Rather, the autonomous-vehicle trade is a long-term vote of confidence in the inescapable future of transportation.
"I think this is the theme," Munster said. "If you believe in the theme, if you believe that cars are going to be autonomous, if you are onboard with that, what ends up happening is it takes longer than you think. Most people think we are going to see some real things, like Tesla will say 2020, but the reality is it is going to take longer. It might be 2025. But anticipation of where this goes is going to continue to move these stocks higher."
Joel Elconin contributed to this report.
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