Artificial intelligence is poised to disrupt nearly every industry worldwide. And the drive for this booming technology may not only transform the auto industry and how consumers drive, but also boost these industrial technology stocks along the way, according to Berenberg Capital Markets. Analyst Jared Maymon initiated and assumed coverage of Mobileye Global and Ambarella , respectively, with buy ratings on both in a Wednesday note to clients. He said the auto industry is in the midst of a transformation that “parallels the evolution of consumer electronics from 1985 to 2010,” noting both companies are poised to benefit from innovation propelled by AI and the growth of driving automation systems. Despite a crowded market, Maymon expects both names to “cut through the noise.” When combined with Nvidia and Qualcomm, he forecasts all four names will account for at least 90% of the more than $30 billion Tier 2 silicon and software market for driving automation by 2030. “Our conversations evidenced that Mobileye is viewed by [original equipment manufacturers] as the incumbent player and thought leader in the space, while Qualcomm and Ambarella are providing attractive open platform solutions, and NVIDIA is servicing the high-cost end of the market with a focus on advanced self-driving technology,” Maymon wrote. Of the group, he views Mobileye as the “best pure-play” silicon and AI algorithm supplier and a driving automation systems “pioneer.” Even as competitors ramp up investment, Maymon expects Mobileye’s leadership and relationships with original equipment manufacturers to sustain its “well-fortified moat.” MBLY YTD mountain Mobileye shares in 2023 Mobileye shares fell last month after the company slashed its guidance and said it now expects a wider-than-expected operating loss. The company went public in 2022 following a spinout from chipmaker Intel , which purchased the Israeli company for $15.3 billion in 2017 . “We view Mobileye’s leadership and ballooning out-year earnings potential from new product launches (i.e., SuperVision, Chauffeur, REM, and Drive) as highly attractive, and recent headwinds from lowered guidance have made us constructive on valuation,” he wrote. Maymon placed a $44 price target on shares, implying 22% upside from Wednesday’s close. Shares are up nearly 1% in 2023. AMBA YTD mountain Year-to-date stock performance Elsewhere, the firm projects that Ambarella shares can nearly double as the company expands its serviceable addressable market and gains traction in commercial areas. The stock has slumped roughly 23% year to date. Maymon also views Ambarella as an “up-and-coming competitor with a differentiated offering” leading in power efficiency. He cited recent partnerships with companies such as Continental and Bosch as signs that the bear case for its “opportunity in autos is set to be disproven.” “We believe Ambarella’s current valuation provides a highly attractive opportunity for investors seeking exposure to software and silicon for driving automation systems, while also providing strong AI-based technology in lateral markets including security, robotics, and consumer electronics,” he wrote. — CNBC’s Michael Bloom contributed reporting
