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Autonomous Driving: Consider Chipping Into These 2 Semiconductor Stocks

With autonomous driving a focus of car makers, investing in developers of related products can make sense. Here are two such chipmakers.

It’s safe to say that automotive technology is evolving at a mile a minute.

From rear-view cameras to pinpoint-accurate satellite navigation systems, drivers are benefiting from fascinating innovation.

Not that many years ago, envisioning electric vehicles as a viable alternative to combustion engines was difficult.

Fast forward to today and we are witnessing legacy automakers like General Motors GM and Ford F investing billions to create full fleets of these environmentally friendly autos. Tesla  (TSLA) - Get Tesla Inc Report is leading a pack of dedicated electric-vehicle producers.

And plenty of investors are interested in discovering the next cutting-edge technology. So looking at companies involved in developing products that will enable autonomous driving can make a lot of sense.

Imagine a world where human error is taken out of the equation on the road.  Autonomous vehicles potentially can make driving safer, more efficient and friendlier to the environment, which means that almost any automaker will be interested in purchasing the products that power this technology.

Like most cutting-edge tech today, these vehicles are going to rely heavily on semiconductors for production.

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Let’s take a look at two attractive chip stocks to consider for exposure to autonomous driving.

Ambarella AMBA

One key to making autonomous vehicles viable is image-processing and computer-vision solutions that will enable vehicles to sense what’s on the road.

That’s a big reason Ambarella is an intriguing company. The Santa Clara, Calif., company develops semiconductor processing solutions for video, which enable high-definition video capture, sharing, and display.

Ambarella’s products are used in a variety of different ways, including for devices like intelligent security cameras, mobile and fixed robots, and consumer products such as drones.

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The stock offers direct exposure to autonomous driving. Ambarella focuses on using artificial intelligence, which helps devices visually perceive the environment and make decisions based on the data that comes from sensors and cameras.

Last June, the company unveiled a partnership with the Charlotte electric-vehicle company Arrival ARVL to use Ambarella’s CV2FS CVflow AI vision processor to enable autonomous driving and advanced driver-assistance systems features in the company’s vehicles.

This partnership could be a big step toward manufacturing autonomous driving technology on a large scale, particularly if Ambarella can successfully improve the safety and efficiency of Arrival’s commercial vehicles.

Ambarella recently reported second-quarter results, including top-line growth of 58% to $50.1 million. The board also approved a $50 million share-repurchase program, which could signal that the company sees its shares as undervalued.

Clearly, the company, like so many other semiconductor companies, faces supply-chain risks in the near term. But Ambarella is a key name for investors seeking exposure to autonomous driving, given its expertise in computer-vision technology.

ON Semiconductor ON

Another way for investors to play the autonomous-driving revolution is via ON Semiconductor, the Phoenix designer and manufacturer of power and data management chips.

ON Semiconductor’s groups include power solutions, analog solutions and image sensors, with the third one offering upside potential should more automakers decide to pursue autonomous vehicles.

Most cars today already offer features like autopilot, park assist, surround-view and rear-view cameras, adaptive front lighting, emergency auto braking and collision avoidance, which is semi-autonomous technology.

These systems all rely on image sensors and Lidar (light detection and ranging) to gather information about a vehicle’s operating environment and then use computer processing to analyze the data to take action.

ON Semiconductor is a key supplier of image sensors and LiDAR. Investors can be confident that this type of image-sensing technology will play a critical role in the development of fully autonomous vehicles.

This stock is also worth a look thanks to the chipmaker’s exposure to other high-growth industries such as cloud computing, 5G networks, and electric vehicles.

ON Semiconductor delivered record revenue and record non-GAAP earnings per share for the second quarter amid a global chip shortage. That's a sign it’s firing on all cylinders.