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The global demand for automotive lidar sensors is increasing. Recent advances in self-driving technology and tougher vehicle safety regulations are driving upheaval in the automotive industry. MicroVision (NASDAQ:MVIS) is one of many companies vying for a share of the growing automotive lidar market. MicroVisions Laser Beam Scanning (LBS) technology holds a strong position in the market. This is why MVIS stock has performed well recently.
The advent of advanced driver assistance systems (ADAS) and lidar sensors in cars is one of the main reasons for their increased safety. Consequently, this creates an incentive for regulators to require that certain levels of technology incorporation be met, which will create high growth opportunities for those who can supply these technologies or components.
MicroVision is poised to take off with its first-generation automotive long-range Lidar (LRL) sensors. Early investors are rightly pleased. It’s easy to get distracted by the hustle and bustle of entrepreneurship, but patience is key. If you are patient enough, your investment will pay off in spades. And that’s what happens with MVIS stock.
The stars align for MVIS stock
However, there are certain risks in injecting capital into this company.
MicroVision suffered substantial losses due to limited demand for legacy products. It is now in its second decade of activity. And the tech company faces a tough battle against fierce competition from incumbents who are already well established in this market segment.
Notwithstanding the risks mentioned above, MicroVision is poised to capitalize on the transition to autonomy and advanced driver assistance systems (ADAS) with its lidar technology. The timely development of best-in-class automotive sensors is exactly the catalyst the company needs after struggling for the past few years. The stock price is also trading at a discount to its 52-week highs.
The stars are aligning for this investment.
Impressive Automotive Lidar Sensors
In recent years, MicroVision has focused on the development of automotive lidar sensors. It builds on existing proprietary laser aiming technology that can be used in cars and trucks as a safety device with unmatched capabilities to track objects around it.
MicroVision’s product is the industry’s smallest and most compact lidar system. A major competitive advantage is its small size. It also facilitates integration with products other than cars, such as cameras or robots. Or any other product that may require advanced vision capabilities for orientation or navigation.
The design advantage could ultimately reduce the total number of sensors required per vehicle for advanced safety features in autonomous driving. It improves on current bulky systems that often come with multiple moving parts. MicroVision’s sensors are smaller than typical consumer electronics devices. So you can place them compactly without disturbing the design of elegant passenger vehicle models.
The operating model offers certain advantages
In addition to its revenue from the sale of sensors, MicroVision will continue to collect royalties from Microsoft (NASDAQ:MSFT). The tech giant entered into a strategic partnership with MicroVision in 2017 to produce high-definition displays.
In 2020, Microvision transferred the production rights of its components to be more profitable. In return for this agreement with Microsoft, the company will receive a license fee based on profit margins from previous production levels. The relationship between the two entities greatly benefits the MVIS stock.
As an example, when Microsoft signed a new HoloLens mixed reality headset deal worth up to $22 billion with the US military, MVIS stock soared. The reason is simple. Microvision provides the HoloLens 2 models. Hence, the stock spiked due to the connection to MSFT. Subsequently, any other contract of this type will have an almost identical impact on the shares.
Research and development (R&D) is at the heart of MicroVision’s expertise in LBS and automotive lidar technology. R&D expenditure is expected to remain high over the next few years.
These expenses are unavoidable. MicroVision must continue to improve its performance through additional applied research. Hence, it will help to enhance its product suite for wider adoption by different markets or applications.
Meanwhile, MicroVision is making great strides in Europe and expects to open a new office there by the end of the year. The company also plans to grow its North American team and its teams in the Asia-Pacific regions for long-term success. This will result in increased selling, general and administrative (SG&A) expenses.
However, it would be useful to put these costs in context. They are part of a strategic vision to expand the reach of overseas offerings.
Wait for MVIS stock to fall
MicroVision takes off in the market with the development of the world’s best automotive LRL sensors and lidar tailwinds. The only thing that goes against MVIS stocks is overvaluation. It has a one-year return of around 200%. Now, some investors might say stocks are finally trading at attractive multiples after falling more than 50% in the past three months. However, what you need to keep in mind is that the stock is in a downtrend.
As you can see from the chart below, it has broken resistance several times over the past few months. Over the past month, the bulls have attempted to stabilize the ship at around $7. However, given the negative sentiment, the bulls can only hold out for so long before the price breaks through that key level as well.
Source: Chart courtesy of StockRover.com
Second, MVIS trades primarily on future growth and progress. Without a doubt, self-driving cars are the future. However, they are not yet the norm.
Therefore, if it cools further, the MVIS stock would be a good stock to future-proof your portfolio.
At the date of publication, Faizan Farooque did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of experience in stock market analysis and was a former data reporter at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions about their portfolio.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.