Self-driving cars, also known as autonomous vehicles, will change the way we live, in the not-too-distant future.  

Self-driving cars will likely reduce the number of parking spaces (which will change how cities are designed and built), lower the number of cars on the road, people’s commutes will be more relaxing and/or productive, and once the technology reaches a certain cost point, allow for faster travel times.  Beyond the consumer benefit, this technology will have transformative effects on industries like trucking, insurance, and auto repair. 

Therefore, investors should keep stocks on their radar that are participating in the self-driving revolution. Here are three of them: Tesla (TSLA - Get Rating), Nvidia (NVDA - Get Rating), and Google (GOOG - Get Rating)

Tesla (TSLA)

It’s tough to justify TSLA’s current valuation based on metrics like revenue, earnings, or even cars sold. However, the valuation makes more sense when considering the company’s potential and leading position in growing markets like energy storage, electric trucking, and self-driving technology.

TSLA is the current leader in self-driving technology since it has the most cars on the road utilizing some versions of this technology. With software, iteration matters. Google has the best search results because it has the most queries and can constantly improve its product based on how users are engaging with its product.

Similarly, TSLA’s vehicles on the road are giving the company valuable feedback which can keep using to improve its product. Many speculate that there will be one or a couple of winners when it comes to self-driving software and drivers will have a subscription package. 

TSLA CEO Elon Musk has laid out his vision through his public remarks: Currently, we are in Step 1 as the company is putting autonomous driving features into cars but still require human oversight. The second step is to roll out self-driving taxi software which would turn owners’ Teslas into cabs that could be used to give people rides and earn money. It would also give Tesla more information it would use to further improve its autonomous driving software. This would be fully autonomous but still require a human in the driver’s seat. And, the third step is to remove the human driver which Musk estimates could happen sometime in 2023, although it would be contingent on regulatory approval. 

Given TSLA’s lead in this field, it’s not surprising that the POWR Ratings give it a Strong Buy rating. It has an “A” across all categories including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Among Auto & Vehicle Manufacturers, it’s ranked #1 out of 34.

Nvidia (NVDA)

Like Tesla, NVDA has been one of the best-performing stocks of this year. Not only is it rapidly growing earnings, revenue, and increasing market share, it also has exposure to the most innovative parts of the economy including crypto, VR, data centers, AI, machine learning, and autonomous driving. 

In Q3, autonomous revenue accounted for 3% of total revenue. The company has made deals with numerous partners and is expected to be the provider of self-driving software for Mercedes-Benz vehicles. These vehicles are expected to launch in the next five years. At first, it will be a premium feature but will eventually be in every Mercedes. 

Nvidia’s autonomous driving unit started with making chips that could be used to process data from sensors. However, it’s moving up the value chain by creating a full end-to-end platform for automakers. 

NVDA’s recent purchase of ARMS Semiconductors will be another asset in growing this part of its business. ARMS has worked with a group of automakers to create a common architecture to standardize chips and systems for autonomous vehicles. 

NVDA is rated a Buy by the POWR Ratings. It has an “A” for Trade Grade, and a “B” for Buy & Hold Grade and Industry Rank. Among semiconductor stocks, it’s ranked #47 out of 86. 

Google (GOOG)

Google is probably second when it comes to developing autonomous vehicles. However, one advantage it may have over TSLA is that it’s not planning to make its own cars but only to license its software to other manufacturers. This might give it an advantage over TSLA, since it’s not also a competitor. 

Given that Google Search is a massive profit-center, the company has plenty of resources to invest in Waymo, its self-driving division. Additionally, the vast majority of its moonshots have failed to generate enough traction, so it has an incentive to continue investing in Waymo. Additionally, the company’s growth has slowed due to a failure to innovate new products which put it at risk of falling behind its peers like Apple (AAPL), Microsoft (MSFT), and Facebook (FB). 

Waymo has been testing out autonomous vehicles on the road. Analysts speculate that Tesla might have 2.4 billion miles driven autonomously, while Waymo has close to 500 million. Currently, it’s running a small pilot program in Arizona, testing out autonomous taxis. So far, the early results are positive. 

The POWR Ratings rate Google as a Strong Buy. It has an “A” across all categories including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Among Internet companies, it’s ranked #1 out of 58th.

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TSLA shares were trading at $623.66 per share on Monday morning, up $24.62 (+4.11%). Year-to-date, TSLA has gained 645.42%, versus a 16.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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