Jacob Wolinsky is the founder and CEO of ValueWalk.
The rollout of 5G is making even more connections possible, and one of the revolutionary trends in the connected world is connected cars. Vehicles are getting smarter than ever before, and they’ll be using up a lot of data as more and more get connected to the Internet of Things.
Here is a wide array of stocks you might consider investing in if you want to take advantage of the push toward connected cars.
No list of connected car stocks would be complete without Tesla, although there are some problems with investing in its stock right now. The company was years ahead of its time with the Model S, which launched with a massive touchscreen to control various functions in the car. The touchscreen also came with a full web browser and connected to the driver’s phone and offers navigation and media.
Tesla updates the operating system in its cars remotely, so drivers don’t need to visit a repair shop or dealership. The automaker also partners with AT&T in North America to use its cellular network to connect its vehicles to the internet to receive navigation and other information.
In some ways, Tesla may be the definitive connected car stock, but its valuation has skyrocketed through recent years and especially in 2020.
Tesla stock may be too expensive for some investors, although some would argue that there’s still plenty of runway for growth.
As with any stock, you should do your own research and determine whether you think it’s worthwhile to take the plunge on Tesla despite the runup in value.
One company most people haven’t heard of is Cerence, which is a leader in the connected car revolution. Cerence builds voice and artificial intelligence systems to connect drivers to their cars and their digital universe. The company was spun out of voice recognition tech provider Nuance Communications last year.
Although Cerence isn’t a household name, it has an installed base of some 325 million cars, according to The Motley Fool. Half of all the vehicles shipped last year had Cerence’s technology on board.
The company offers not only artificial intelligence and voice recognition but also gaze and gesture technologies and augmented reality and what it calls “situational awareness.”
Cerence stock has skyrocketed this year, which may be somewhat
remarkable, given the cyclicality of the auto industry and the fact that vehicle sales are often the first to go during a recession. The stock was trading in the lower $20s range at the beginning of the year and now trades at over $90 a share.
Another company that isn’t really a household name is Gentex, which is building technology that connects the car to the home. The technology enables drivers to operate their home automation devices using buttons in their vehicle. Gentex utilizes a combination of radio frequency and cloud-based wireless control to open and close garage doors, operate security systems, turn lights on and off, lock or unlock doors, operate thermostats and more from inside the car.
Gentex is also connecting cars to infrastructure for in-vehicle payments using a multi-protocol transponder integrated into the vehicle. Drivers no longer need multiple transponders for the nation’s tollways. The in-vehicle payment system can even allow drivers to pay for food at the drive-thru.
The company also offers a biometrics system that enables drivers to control everything by simply looking into the mirror.
Iris scanning technology grants the driver the ability to operate the vehicle, personalizes the interior and allows secure operation of cloud-based services.
Gentex has had a bumpier ride this year, although it has finally recovered what it lost in the March selloff. The interesting thing about Gentex stock versus some of the others on this list is the fact that it’s a bit cheaper than its peers. According to Simply Wall St. (via Yahoo! Finance), Gentex is trading at a PE multiple of 26 times, compared to its peer average of 44 times.
One advantage of Equinix is that it’s more than just connected cars. As the largest data center operator in the world, the company provides connections not just to vehicles but to just about anything you can dream of.
The company touts itself as connecting users to everything they need to succeed in the “world’s most dynamic business ecosystems.”
Equinix enables both direct and private connections to thousands of
different partners. It also integrates networks, storage and applications over a single interconnection fabric, and that includes vehicles.
Shares of Equinix have increased a bit this year, but they haven’t taken off like other stocks on this list have. Still, at around $700 a share, the stock might be out of reach for some investors. The pandemic has provided a boost to Equinix’s business as people depend more on connectivity and the cloud. It’s also a dividend stock, which may be a good enough reason for some investors to buy in.
Cisco also connects more than just vehicles. Through its acquisition of Jasper Technologies, Cisco Systems aims to help manage the growing
number of connections users have, which includes their vehicles and any
other devices they have connected to the Internet of Things. Vehicles are just one of the sources of data provided to Cisco’s network.
Cisco’s Automotive Solutions are aimed at auto manufacturers by helping connect their factories and provide support due to a lack of skilled workers.
The company provides end-to-end architecture for industrial applications, including plant device management, manufacturing execution systems and more.
Cisco Systems stock has had a difficult year. It recovered what it lost in the March selloff, only to lose some of that ground again. Cisco is also a dividend stock, although some analysts argue that other companies have been stealing some of the company’s market share.
Dassault works on various aspects of mobility and other industries, including connected cars. The company is a global leader in design software for vehicles. Cloud solutions like the Electro Mobility Accelerator enable automakers to come up with new electric mobility concepts.
Dassault serves automakers with solutions that enable them to design connected vehicle technologies and other technologies for vehicles. This makes them rather unique among the names on this list.
Dassault Systèmes stock has been relatively range-bound this year, although it has recovered the ground it lost in the March selloff. The French company recently forecast more growth in cloud software revenue
over the next five years. Dassault doesn’t get a lot of analyst coverage, which can make it difficult to make a decision about this stock.
One of the benefits of investing in Qualcomm is the fact that you get exposure to many more areas of connection than just connected cars. The company is a leader in components for 5G technology, which means it
offers exposure to both 5G and the Internet of Things.
Qualcomm offers a full suite of features and technologies for connected vehicles, including its Snapdragon Automotive 4G/5G platforms, infotainment systems, advanced driver-assistance programs and cloud
The cloud connectivity solutions extend Qualcomm’s 4G and
5G mobile platforms to connect both drivers and passengers to the cloud. The company also offers its Car-to-Cloud services, which offer new
connected services and monetization opportunities for businesses.
Qualcomm stock has climbed significantly this year, rising from less than $100 up to more than $140 per share. Semiconductor stocks in general have been hot for the last several years, although most of that sentiment has been driven by enthusiasm about components for mobile devices. Components for connected vehicles are the next obvious step.
Through its Autonomous X platform, Hexagon offers positioning solutions for ground truth systems, platform development and serial production stages for autonomous vehicles. Autonomous X is designed to enable cars, drones, industrial vehicles, trains and other vehicles to operate safely, securely, reliably and efficiently.
Hexagon offers exposure to both connected vehicles and autonomous
driving, so that’s a bonus of investing in its stock. It approaches the
autonomous vehicle problem from the perspective of connected vehicles.
Essentially, by connecting vehicles and providing positioning on all of them, all vehicles on the network can operate safely and more efficiently.
Hexagon stock has marched steadily higher this year, climbing from around $60 to more than $80 per share on the OTC markets. Not much
analysis of Hexagon shares is available because the company doesn’t
appear to get a lot of coverage from analysts, which could make it
challenging for those who are trying to research this stock. However, it is one connected car stock that should be considered.
Another company that offers exposure to 5G and the Internet of Things is Skyworks Solutions. The company touts its “vehicle-to-everything” connectivity solutions and states that its leadership in 5G technology
provides the seamless connectivity needed to push forward automotive
Among the components offered by Skyworks Solutions are
various antennae for connectivity, RF switches, modules, power amplifiers and low noise amplifiers.
The company’s SkyOne Ultra platform enables high-speed data and real-time communication for connected cars. The platform provides low latency, high bandwidth LTE service for vehicle-to-everything services.
Skyworks Solutions’ offerings are LTE Cat 16 compliant and scalable to 5G New Radio standards.
They also support all of the world’s cellular bands and can be regionally optimized for North America, China, Europe or other parts of the world.
Skyworks Solutions stock has more than made up for the ground it lost during the market selloff in March. Excluding this year, the shares have been rather range-bound between $50 and $100 over the last five years or so, but they stand to take off as the transition to 5G continues. Between 5G and connected cars, Skyworks Solutions looks poised to return to growth.
One interesting point is the fact that almost one-third of its revenue came from outside the smartphone industry in the most recently completed quarter, which means there is plenty of room for expansion in connected cars and other non-smartphone areas.
The chip maker NVIDIA is building a nice business in autonomous vehicles, and it’s also looking toward connected cars as a way to reduce traffic accidents. NVIDIA puts its expertise in artificial intelligence toward its connected car technology.
Its NVIDIA DRIVE hardware and software solutions enable automakers, suppliers and startups to offer autonomous driving technology.
In some ways, NVIDIA is more an autonomous driving stock, but connectivity will be required to truly make self-driving a reality.
One issue with NVIDIA stock is that some may consider it to be overvalued after the bull run it has been on in recent years. Semiconductor stocks have been hot, and stock valuations in the sector have soared, taking NVIDIA along for the ride. Like most other tech stocks, NVIDIA shares have surged this year, continuing their multi-year bull run. They now trade at more than $500, which could put them out of reach for some investors. However, investors who like momentum stocks might want to look into NVIDIA.
The author of this article has no positions in any stocks mentioned.
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