Mobileye (MBLY) $11.50 - Has its eye on the ADAS prize

Industry/Sector/Type - Autonomous Vehicles, ADAS (Advanced Driver-Assistance Systems) / Secular growth

Biggest catalysts for the stock:

A 9-million-unit deal with General Motors could get them additional revenue of $1.35 to $1.8Bn in 5-7 years or about $300Mn extra per year. That is a significant win for a $1.9Bn revenue company. MBLY also plans to acquire humanoid robotics startup Mentee Robotics for about $900M, which drew largely positive reactions from analysts.

"The acquisition broadens MBLY's scope beyond automotive end markets by extending its perception, mapping, and safety-focused decision-making stack into humanoid robotics and strategically positions itself as a partner for other legacy OEMs [Original Equipment Manufacturers] moving into AI applications," said Morgan Stanley's analysts led by Andrew Percoco.

The stock has had a checkered history touching $43 in December 2023, but then languished for a long time, not even crossing $20. For a growth company it shockingly had a down year dropping revenue 15% in 2024, after over producing. Since then it has recovered from a low of $10, and looks very interesting at this price.

The autonomous vehicle and ADAS space should have grown much faster, especially with the better quality of semiconductors in the last few years, and I believe that this could be the beginning of a new growth cycle, as physical AI starts generating revenue.

This space is dominated by Nvidia, Qualcomm and Mobileye, with QCOM way ahead at over $4Bn+ in revenues and NVDA and MBLY at $2.1Bn and $1.9Bn each.

Positives

A premium product: Mobileye's ADAS business has moved up to premium. The shift from "Basic ADAS" to the "Surround ADAS" platform used in this deal is huge and a rung up the pricing/quality ladder.

Revenue per vehicle jumps: Analysts estimate the EyeQ6H Surround ADAS system costs significantly more from $140 to $185 each vehicle, increasing 3 to 4 times its previous revenue per vehicle of $40-50 for its basic ADAS chips.

Increasing revenue by 10 to 15% : If it manages to ramp up and ship by Q3-2026, this will translate to an annual revenue between $250Mn and $350Mn in 2027.For a company that's had a few lean years getting contracts, this is a big deal.

Negatives

The ADAS (Advanced Driver-Assistance Systems), which is the largest segment of the autonomous vehicle market (before the fully autonomous stage) is dominated by a lot of Chinese suppliers, offshoots of software/tech and electronics companies and they tend to over-supply and fight on price. We saw that hurting MBLY. Secondly, OEM programs take a lot of time to ramp, the process from Blueprint to commercial production takes years.

Here is a detailed report on this industry.

Investing in this industry requires a lot of patience and QCOM and NVDA have other revenue segments so they don’t suffer like MBLY. But at this low price with the new contract, the pending acquisition, and strong cash flow suggests that this could move up a gear.

Valuation

Pristine Balance Sheet with great cash generation at a bargain price: Mobileye is priced at 30x earnings growing at 40%, a high P/E no doubt, but a low PEG of 0.75. It sells for 5.2x sales growing at 19% - not bad. The company doesn’t have GAAP profits but a great cash flow margin of over 30% - which means for a $1.9Bn revenue company it generates almost 600Mn of operating cash. It has $1.8Bn worth of cash with no debt and spent only $60Mn in Capex in the first 9 months of the year.