Intel Stock (INTC) Is Betting Big on Driverless Cars
Intel Corporation (NASDAQ:INTC) is reportedly buying a 15% stake in “Here Maps,” which is map-making software owned by a cartel of German automakers.
Without the appropriate context, this move looks strange at best and idiotic at worst. However, in the right light, you may start to see this as a bold effort to increase the value of Intel stock (INTC stock).
Let me explain…
For most of its history, Intel has sold microchips to computer manufacturers. That’s been its bread and butter. Intel stock remained on an upward track alongside the rise of computer sales, but that’s precisely why things went wrong: computer sales started to slow.
Intel had all its eggs in one basket, so when personal computer (PC) sales fell flat, it dampened the outlook for INTC stock. Investors didn’t want to shell out money for a company that had no future. (Source: “Intel Buying 15% Stake in Here, German Auto Makers’ Digital-Map Venture,” The Wall Street Journal, January 3, 2017.)
Perhaps investors would have remained bullish on Intel stock if the company rode the smartphone wave, but Intel had missed the mobile revolution. It left the door open for rivals like QUALCOMM, Inc. (NASDAQ:QCOM) to dominate that burgeoning market. That oversight cost INTC stock a lot of gains, but on the flipside, it added a massive chip to the company’s shoulder.
Intel has something to prove now. It wants to take advantage of the next technological boom, regardless of cost, because it knows the cost of doing nothing. This is why Intel is pouring money into virtual reality (VR) and sports technology. But, more importantly, it’s why Intel is investing huge sums into driverless cars.
Just take a look at the facts:
- Today’s cars are basically “computers on wheels.” Almost all modern automobiles function with the use of advanced microchips. Everything from the transmission to the brakes is controlled through on-board computers. Intel could make huge sums of money selling these chips. It could make even more money if those chips had to be updated to accommodate driverless tech functions.
- Intel signed deals with Delphi Automotive PLC (NYSE:DLPH)
and Mobileye NV (NYSE:MBLY). You may recognize the name Mobileye, because it used to provide driverless tech to Tesla Motors Inc (NASDAQ:TSLA). That relationship fractured last year, leaving Mobileye without its biggest client. Now there seems to be a collaborative effort between it, Delphi Automotive, and Intel. Hold that thought.
- Intel spends hundreds of millions of dollars buying part of Here Maps. This is the last piece of the puzzle. If Intel has thrown its lot in with German automakers, computer vision experts, and mapping technology, it is clearly trying to win the driverless tech market.
Intel’s investment in Here Maps is no coincidence. Companies don’t buy other companies on a whim (unless we’re talking Marissa Mayer’s Yahoo! Inc. (NASDAQ:YHOO); she spent money like there was no tomorrow). Careful planning is required to make sure the investment makes sense. It wasn’t by accident that Intel lined up deals to bolster its driverless tech portfolio.
The driverless car market is estimated to be worth $42.0 billion by 2025, and that’s a conservative estimate. Carving out a portion of that market would dramatically increase the upside potential for Intel stock. In fact, we would even be willing to raise our price target on INTC stock to $75.00, given the right conditions. Intel knows this—it’s why it made such a bold play in the first place.