The surge in artificial intelligence (AI) technology over the past year has accelerated the development of fully self-driving vehicles, bringing them closer to reality. One of the key players in this field is Mobileye Global (NASDAQ: MBLY).
Established in 1999, Mobileye boasts decades of experience in advanced driver assistance systems (ADAS), which aid drivers in accident avoidance. The company has established a robust business by supplying its technology to more than 50 vehicle manufacturers worldwide, including Volkswagen.
However, while the prospects of autonomous driving and the rise of AI are promising, it’s important to thoroughly assess whether Mobileye stock presents a compelling investment opportunity.
Mobileye’s technology
According to consulting firm McKinsey, the combined market for Advanced Driver Assistance Systems (ADAS) and autonomous driving is projected to exceed $300 billion by 2035, with autonomous driving accounting for at least $170 billion of that total.
Mobileye has developed a sophisticated platform capable of real-time analysis of driving conditions, with minimal energy consumption and cost-effectiveness for automakers. Its solutions have been integrated into over 170 million vehicles, providing the company with extensive driving data to further enhance its systems.
Recognizing the gradual transition toward fully autonomous vehicles, Mobileye has adopted a modular approach in its product portfolio. This enables automakers to select the appropriate level of ADAS and autonomous capabilities for each vehicle model and to incrementally increase technical sophistication based on consumer demand.
As public interest in self-driving technology grows, Mobileye is poised to offer increasingly comprehensive capabilities. These include sensors, cameras, and radar systems to perceive the road, software defining safety parameters, redundant systems for continuous operation, and real-time mapping for traffic and road condition analysis.
Mobileye’s financials
In 2023, Mobileye’s impressive technology and widespread adoption among automakers translated into sales totaling $2.1 billion, up from $1.9 billion in 2022. The company also achieved cost efficiencies, reducing its net loss from $82 million in 2022 to $27 million in 2023. Notably, Mobileye turned profitable in the fourth quarter, with net income increasing by 110% year over year to $63 million.
Exiting 2023 with a robust balance sheet, Mobileye reported total assets of $15.6 billion, including $1.2 billion in cash and equivalents, while total liabilities stood at only $653 million, with no debt.
Despite its strong performance in 2023, Mobileye anticipates a decline in revenue for 2024. The low end of its guidance range forecasts sales of just $1.8 billion, representing a double-digit percentage decrease from the previous year. This projected revenue drop is attributed to lingering supply chain disruptions stemming from the COVID-19 pandemic.
The pandemic led to a range of supply chain challenges, prompting automakers to stockpile Mobileye’s products as a preemptive measure. Once these supply chain issues were resolved, excess inventory remained, reducing the need for additional purchases of Mobileye’s products in 2024. Consequently, investor sentiment towards the stock declined, with the stock reaching a 52-week low of $23.49 on Feb. 23.
Mobileye’s management expects automakers to gradually work through their surplus inventories in the first half of 2024, paving the way for a return to normalized revenue levels in the latter half of the year, as stated by CEO Amnon Shashua.
Making a decision about Mobileye stock
While Mobileye’s projected revenue decline for the year may have contributed to a drop in its stock price, this setback could present an opportunity for patient investors awaiting a rebound in sales. Although shares have shown some recovery, they remain below the 52-week high of $47.41 reached in May. Furthermore, Wall Street analysts generally hold an overweight rating on Mobileye stock.
Nevertheless, investing in the company entails significant risks. The widespread adoption of fully self-driving vehicles is still years away, and regulatory hurdles may evolve as public usage of such vehicles becomes more widespread.
Moreover, Mobileye faces substantial competition in the autonomous driving sector. Larger companies such as Alphabet-owned Waymo, General Motors, Tesla, and Nvidia are actively developing self-driving technology. Additionally, Mobileye’s customer Volkswagen has expressed intentions to eventually transition to an in-house system it is developing.
Despite these challenges, Mobileye boasts several competitive advantages that position it well to capture a substantial portion of the expanding ADAS and self-driving market. The company’s strengths include advanced technology, decades of industry experience, and a wealth of driving data from around the world, enabling it to meet diverse regulatory requirements. These factors make Mobileye an attractive growth prospect over the long term.
