Jefferies Loves These Chip Stocks to Buy in Automated Driving Space

Despite its name, Tesla’s Full Self-Driving (FSD) software is still far short of taking over full control of moving vehicles. The $12,000 (in the United States) option currently meets the SAE requirements for Level 2 (of six) autonomous driving.

Tesla’s FDS uses cameras exclusively to give the vehicle the information it needs to perform tasks like automatic lane changing and traffic light recognition. It does not give the vehicles full control with no human driver intervention.

Tesla and Musk insist that a camera-based advanced driver-assistance system (ADAS) is superior in both capabilities and cost to alternatives that use lidar (light detection and ranging) or radar. Tesla did use radar in its first version of Autopilot, but it dropped the technology last year. Autopilot was Tesla’s first go at autonomous driving, and it included software that could steer, brake and accelerate the company’s cars.

Lidar depends on machine learning (ML) and artificial intelligence (AI) to gather and interpret sensor data quickly. Volvo, which long-ago built its reputation on automobile safety, is adopting lidar as standard equipment on its new line of EVs. At the recent CES show in Las Vegas, one lidar maker showed a video comparing a Tesla camera-only system to a lidar system mounted on a Lexus.

Analysts at Jefferies have initiated coverage on two companies, one of which is a camera chip supplier and the other a lidar maker. Both have market caps of around $5 billion in a total available ADAS market valued at around $19 billion by 2030. The camera market is expected to grab about $7 billion of that total while lidar nabs $12 billion. Jefferies expects two to four suppliers to float to the top in each technology.

Jefferies initiated coverage on camera supplier Ambarella Inc. (NASDAQ: AMBA) with a Buy rating and a 12-month price target of $170. At a recent price of around $131 per share, the upside potential is almost 30%. Lidar maker Luminar Technologies Inc. (NASDAQ: LAZR) also was started at Buy with a price target of $20, implying upside potential of 52.7% to a price of around $13.10 per share.

Ambarella’s system on a chip (SOC) technology made a big splash with GoPro back in 2014 and 2015. Since then, GoPro’s share price has sunk while Ambarella’s reached a new high in December. Jefferies sees the company transitioning from video processing to integrated computer vision (CV) for security cameras, consumer electronics and the auto market.

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