Shares of tech giant Intel (INTC - Get Report) slid before the markets opened on Monday following the announcement that the company will be purchasing project partner Mobileye (MBLY) in a deal worth roughly $15.3 billion.
The purchase catapults Intel into the middle of the autonomous vehicle space. But are investors doing the smart thing by reversing out of its stock?
Monday's announcement caught investors by surprise. Although Intel has been venturing into the self-driving car scene-partnering with Mobileye and German carmaker BMW (BAMXF) to test 40 autonomous vehicles by the end of 2017--the company had previously maintained that it would cap spending on this technology at $250 million.
However, in Monday's announcement, CEO Brian Krzanich explained that he has reversed this stance because he believes the autonomous vehicle technology market could net the company as much as $70 billion by 2030. Given that Intel's sales fell just shy of $60 billion in 2016, that would give the company a giant boost.
But will this gamble be worth the risk? The Mobileye purchase doesn't come cheap. At $15.3 billion, the deal values the smaller company's stock at $63.54 per share, a 50% premium over Friday's closing price.
Mobileye is based in Israel and creates sensor and mapping technology for self-driving vehicles. And perhaps the biggest ace up its sleeve is the long list--27--of carmakers with which the company has already cemented deals.
The company garnered headlines last September when it initiated a nasty breakup with former partner Tesla (TSLA - Get Report) . Mobileye had cited concerns over Tesla's autopilot safety as a reason for the split.
Intel's hefty offer sure looks good to the company on the rebound, and investors would agree. On Monday morning, shares of Mobileye had shot up by more than 30%.
Intel is best known for its domination of the personal computer semiconductor market. The ubiquitous "Intel Inside" stickers can still be found on roughly 99% of all desktop systems.
But PC sales are beginning to weaken as consumers become more reliant on mobile devices to satisfy everyday computing needs. So Intel has had to look elsewhere for profits.
All told, it's probably a smart move for Intel to plunge further into the self-driving car pool. However, we'll have to wait to see if the Mobileye purchase was worth the cost. Although car companies are growing closer to rolling out autonomous vehicles by the day, there are already plenty of players in this market--tech companies such as Alphabet (GOOGL - Get Report) , Apple (AAPL - Get Report) and even BlackBerry (BBRY) have already been venturing into this space and made strategic partnerships with car companies. It's unknown what sort of market share Intel and its investors should be expecting. Plus, the mountain of regulations that will need to be resolved could cause substantial headwinds.
Still, investors who are looking for the potential to profit from this market might want to consider grabbing Intel shares on price dips. The company pays out a decent dividend yield just under 3%. And the company's other departments still generate profit, such as its high-end, expensive semiconductor chips marketed toward desktop gaming systems. Sales here rose by 8% in 2016.
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