The 'Driverless Car' Hype Reminds Me of 3D Printing Bubble

There are a lot of similarities between the driverless car hype and the 3D printing bubble. Both the technologies have been in existence for decades and only came to widespread attention in the last few years. Both the technologies are (or were) touted to be revolutionary and groundbreaking. Due to the futuristic nature of both the technologies, stocks in the sectors became hyped and entered the bubble territory.

While the 3D printing bubble has popped, the driverless car hype is still alive and kicking. However, unlike 3D printing, I do think that autonomous cars will become a mainstream technology in the coming years.
However, I think it will take about 15 to 20 years before the technology overcomes all of its shortcomings and becomes conventional.

The 3D printing sector had many companies and I have recommended investors to short almost every one of them over the last three years. On the contrary, investors looking to profit from the growth of autonomous vehicles only have one option-Mobileye (MBLY).

Mobileye is the only pure-play company for the sector, which is probably why the stock is trading at such a high valuation. I recommended shorting Mobileye multiple times over the last few months and despite the fact that the stock has lost about 40% of its value, I think it has more downside potential.

Mobileye is currently trading at a whopping 179x trailing earnings and has a P/S ratio of 27.23. Clearly, investors are expecting Mobileye to report monumental growth over the coming years. In fact, I think the stock has been pushed into the bubble territory. While I’m not denying the eventual rise of driverless cars, I think Mobileye’s current valuation makes it a screaming short.

Investors are pricing in years of growth in Mobileye’s current price. However, I strongly believe that it will take the technology decades to become mainstream, which is why I find Mobileye’s current valuation appalling. There’s no way that Mobileye can continue trading at such a high valuation and I expect the stock to fall 70%-80% in the coming months. Mobileye should be trading around $5, which is a lot lower than its current value of $28.

Like 3D printing, the driverless car bubble will burst and reality will catch up with Mobileye’s valuation. The hype will not live long and the driverless car bubble will eventually burst, pushing Mobileye’s stock towards a more conservative valuation. Personally, I think the stock will be trading at around $5 over the next twelve months, thereby making it a compelling short.
Published on Feb 9, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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