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Invest in the Cars
of the Future, Today

By Daren Fonda, Kiplinger’s Personal Finance
Kiplinger’s Money Power

Cars of the 21st century are going high-tech with legions of computer chips, sensors and software. Battery-powered vehicles are reaching a mass market, too, and they’re being outfitted with artificial intelligence to “see” the road, reducing or eliminating the need for a human at the wheel.

Producing these futuristic cars may one day ring up profits for electric-car maker Tesla (TSLA). But more compelling, in our view, are companies that sell the artificial-intelligence brains, semiconductors and sensing technology inside the new smart cars. At the forefront of this trend is chip maker Nvidia (NVDA, $102).

Fusing data from onboard sensors, cameras and laser-based systems, the firm’s new Drive PX 2 technology can “understand” a vehicle’s environment and help guide the car down the road. At full power, Nvidia says, the system can process “24 trillion deep learning operations per second” – enough AI brainpower to replace a human driver. Nvidia says Tesla plans to deploy this mini supercomputer in its vehicles, and other carmakers are buying versions of the technology.

Nvidia’s automotive sales amounted to $359 million for the nine-month period that ended last October – less than 10 percent of total sales. But auto-related sales climbed 60 percent from a year earlier and should increase steadily as more carmakers buy Nvidia’s chips. Nvidia recently announced deals with Audi and Mercedes-Benz to include its technology in forthcoming models. The firm also unveiled a new “supercomputer on a chip” for self-driving cars and announced a deal with Chinese Internet firm Baidu (BIDU) to develop the technology for driverless cars in China.

Chip maker Qualcomm (QCOM, $58) is racing into the auto industry too. The firm’s Snapdragon lineup of processors runs “infotainment” systems and applications such as 3-D navigation. Qualcomm’s auto business could get a big lift, too, from its planned merger with NXP Semiconductors (NXPI), the world’s largest maker of automotive chips and sensors (the deal is expected to close later this year).

Outside its automotive business, Qualcomm makes chip sets for the wireless industry and earns hefty royalties from licensing CDMA technology – a critical component of wireless devices and mobile networks around the world. Qualcomm’s stock tumbled 18 percent in January because of fears that the highly lucrative licensing business may not be as profitable in the future. Still, Qualcomm’s deal for NXP should be a big winner. The company should also retain its “pole position” in wireless technology, says Sonu Kalra, manager of the Fidelity Blue Chip Growth Fund. Trading at just 12 times earnings, the stock looks inexpensive. As a bonus, the shares possess a healthy 3.6 percent dividend yield.

Editor’s Note: Daren Fonda is an associate editor at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.


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