A moonshot just hit its target
13th March 2017 |
Mobileye, our play on autonomous vehicles, closed at a market cap of $10.482 billion on Friday. When I recommended the share in January it was in the belief that the share was grossly undervalued by current metrics and its growth potential would far outpace that valuation over the coming months and years. It would appear Intel shared that view. It announced a takeover attempt of Mobileye over the weekend at $63.54 a share, which is an almost 60% premium to our original purchase price.
Intel missed a trick when mobile phones took off. It has simply ignored the market for years, preferring instead to concentrate on desktops where it still has a strong lead. The problem was that mobile phones exploded in popularity and companies like ARM Holdings took the initiative and the bulk of the profits. Since the market for desktop computers is shrinking, Intel can’t afford to miss out on the evolution of autonomous vehicles.
Self-driving cars are going to need lots of sensors and chips if they are going to come close to approximating what humans can do with a few mirrors, a steering wheel and eyes. It is going to be a bonanza for chip companies, which is why Intel is buying Mobileye today. If it waits, it would probably have to pay a lot more for it later. Here is a section from the press release discussing where Intel sees the future of autonomous vehicles:
As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centers on wheels. Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity. The complexity and computing power of highly and fully autonomous cars creates large-scale opportunities for high-end Intel® Xeon® processors and high-performance EyeQ®4 and EyeQ®5 SoCs, high-performance FPGAs, memory, high-bandwidth connectivity, and computer vision technology.
It is my belief that it is getting a bargain by valuing Mobileye at $15 billion, which is positive for Intel. The offer has been accepted by both boards and will be paid in cash so there no chance of a competing offer.
Broadly speaking, the true success of a moonshot is that it can remain an independent company long enough to harvest the rewards from the market it is pioneering on its own. That is a difficult prospect because capitalism trends towards consolidation. The large are always attempting to consume the small and a very single-minded management team is required to fend off the advances of suitors. On the other side of the equation, Mobileye’s technology now has a much greater chance of reaching market in a timely manner considering the scale of investment a company like Intel can bring to bear.
I am recommending a sell and that you accept Intel’s offer for a 59% gain on the open price of 39.86.
Until next time,
Eoin Treacy
Investment Director, Frontier Tech Investor
