Intel has announced that it will not be selling its stake in Mobileye, countering recent rumors suggesting otherwise. This decision appears beneficial, given the strong market performance of tech stocks, particularly those related to autonomous vehicles, which has surged thanks to Intel’s announcement.
On Thursday, tech stocks saw significant gains, with Mobileye (up 17.92%), Alphabet (up 2.06% and 1.97% for its respective share classes), and Intel (up 2.74%) being notable beneficiaries. These gains are partially attributed to a recent 50-basis-point interest rate cut by the Federal Reserve, but Intel’s declaration regarding Mobileye also played a crucial role.
Earlier speculations had hinted at Intel potentially selling its 88% stake in Mobileye, a company known for developing machine vision systems for electric vehicles. However, Intel has now confirmed its commitment to retaining its stake, emphasizing belief in the future of autonomous driving technology and Mobileye’s leadership in advanced driver assistance systems. This reassures Mobileye investors against a potential dilution of their shares, especially given the stock’s 73% decline over the year.
Alphabet, which continues to invest heavily in its Waymo self-driving car project despite substantial losses, also stands to gain from Intel’s decision. Intel’s persistence in holding onto Mobileye may indicate long-term strategic value in the self-driving vehicle sector.
Intel itself could greatly benefit from this decision. The company recently reported a significant Q2 net loss and dwindling revenues, requiring a profitable turnaround. Analysts from S&P Global Market Intelligence predict that while Mobileye may not achieve GAAP profits until at least 2026, it is already generating considerable free cash flow, expected to reach $435 million next year. Though Mobileye’s high market capitalization translates to a substantial price-to-free-cash-flow ratio of 22, its potential for tripling free cash flow by 2025 could validate Intel’s decision to retain its stake.
For investors seeking opportunities in the driverless car revolution, Mobileye stock appears a promising option.
This disclosure is provided: Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, recommends Intel and Mobileye Global, and suggests short November 2024 $24 calls on Intel. Please refer to The Motley Fool’s disclosure policy for more information.
