Forget Electric Vehicle Stocks: These 3 Tech Stocks Are Better Buys
Earlier this year, numerous shares of electric vehicles (EVs), including You’re here and NIO, reached unprecedented heights. Numerous Special Purpose Acquisition Companies (SPACs) have also exploded after announcing plans to merge with smaller EV makers or EV tech companies.
This buying frenzy was supported by a new breed of Robinhood investors, who got many of their investing ideas from the Reddit forums and aggressive growth investors like Cathie Wood, who holds Tesla number one in her product. Lighthouse. ETF ARK Innovation.
However, many investors who chased these recoveries have been punished in the past three months as rising bond yields triggered a rapid rotation from growth stocks to value stocks. Many high-growth tech stocks also fell as investors passed stories of pandemic growth to theaters reopening.
It might be tempting to buy some of these EV stocks after the recent sale. However, I think it is safer to invest in diversified technology companies that will benefit from the expanding electric vehicle market but are not completely tied to its future. Here are three actions that correspond to the invoice: Baidu (NASDAQ: BIDU), NVIDIA (NASDAQ: NVDA), and NXP semiconductors (NASDAQ: NXPI).
Baidu, which owns the number one search engine in China, generates most of its revenue from advertising. This core business has struggled over the past two years due to competition, slowing economic growth in China, tighter restrictions on certain types of announcements and the pandemic.
However, Baidu expects its advertising business to resume this year as China’s economic growth stabilizes, sectors affected by a pandemic recover, and expands its ecosystem with new services (such as mini-programs for its mobile application and its DuerOS voice assistant).
As Baidu’s advertising business recovers, it will continue to expand Apollo, its open source software platform for self-driving cars. Apollo has already secured more than 100 global partners and forms the technical basis for its autonomous robotaxi and EV activities.
Baidu launched new EV joint venture with Chinese automaker Geely earlier this year and recently appointed Wei Dong, the former CEO of transportation company Shouqi Yueche, to market its Apollo software. These efforts, along with Baidu’s plans to launch more Apollo motor vehicles this year, could finally allow the tech giant to generate significant revenue from its automotive business.
One of Baidu’s main Apollo partners is NVIDIA, which is primarily known for its gaming and data center GPUs, but also sells automotive chips.
NVIDIA’s Arm-based Tegra processors power infotainment and navigation systems for high-end automakers like Audi and Lamborghini. They also power its Drive on-board computers for autonomous vehicles.
NVIDIA generated 3% of its revenue from automotive chips in the last quarter. This is only a tiny part of its activity, and the unit faced severe headwinds last year as the pandemic disrupted production of new vehicles. The global semiconductor shortage could further delay this recovery.
But after those headwinds abate, NVIDIA’s automotive business is expected to pick up and gradually account for a larger share of its revenue. Until then, NVIDIA is expected to continue to generate a high percentage of revenue and double-digit growth as it sells more gaming and data center GPUs.
3. NXP Semiconductors
NXP, one of Europe’s largest chipmakers, is often overlooked in discussions about driverless and electric vehicles. However, the Dutch company became the world’s largest auto chip maker six years ago after acquiring rival Freescale.
NXP’s automotive business, which accounted for 44% of its revenue last year, suffered a slowdown last year and offset growth in its industrial IoT (Internet of Things) and mobile chip business. The softness of its communications infrastructure activity exacerbated this slowdown.
But this year, analysts expect NXP’s revenue and profits to grow 23% and 58%, respectively, as its auto business recovers.
This outlook looks optimistic, but the chip shortage could further slow NXP’s recovery by delaying deliveries of new cars. NXP manufactures most of its own chips, but outsources some of its production to Semiconductor manufacturing in Taiwan, the world’s leading contract chip maker. As a result, its long-term recovery may still depend in part on TSMC’s ability to increase capacity and stabilize the global chip market.
That being said, NXP remains a balanced game for conservative investors who want some exposure to the automotive chip market but don’t want to take excessive risks on EV makers and speculative PSPCs.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.