The semiconductor industry is huge, and the promising outlook for autonomous driving is a potentially big tailwind for some chip makers.
The global autonomous vehicle market is expected to reach over $550 billion by 2026, according to Allied Market Research. That exact number varies depending on the research hub, but many reports say the growth should be explosive. Research and Markets says autonomous vehicle sales could grow by over 40% yearly through 2026, when the total market would hit over $600 billion.
Let's sort through the different players in semiconductors that could benefit.
Nvidia (NVDA - Get Report) and Intel (INTC - Get Report) are making "the brains" behind what powers an autonomous vehicle, TheStreet's Tech Editor Nelson Wang said. Nvidia is expected to see about 7% of its revenue in 2020 come from its automotive segment. Intel in 2017 acquired Mobileye, a maker of sensor and camera chips for cars. Intel doesn't break out its automotive revenue. And Qualcomm (QCOM - Get Report) makes modem chips that power a car's ability to connect to the internet.
While it's hard to say, at this juncture, which chip company is best positioned to best capture the autonomous trend, one fund manager is high on On Semiconductor (ON - Get Report) . "No matter what happens, cars are getting smarter, so we think even without autonomous vehicles, you're going from about $300 of semiconductors in a car today to about $1,000 of semiconductor content within a couple of years," said Lamar Villere, founder of Villere Balanced Fund. Put simply, as cars become more technologically advanced, the amount automakers are paying for chips per vehicle will rise significantly.
Villere noted that On Semiconductor shares have contracted in the past several months, making the stock attractive. On is down almost 16% since May 23 and shares trade at 11.3 times forward one-year earnings. NXP (NXPI - Get Report) , by contrast, trades at 12.3 times earnings, with Qorvo, which gets almost half of its revenue from its automotive segment, (QRVO - Get Report) at 12.6.