Mobileye’s Recovery Steadily Gains Traction with Novel AI

Key Points

• Mobileye is the global leader in advanced driver assistance systems (ADAS), which are found in over 150 million mass-produced vehicles from General Motors, Ford, Toyota, and Volkswagen.
• Mobileye’s top 10 automaker clients account for 80% of their total volume and 50% of current global auto production.
• The CEO confirmed that inventory normalization has concluded, and shipment volumes in the third quarter of 2024 were consistent with end-market demand.

Mobileye Global Inc. NASDAQ: MBLY is a worldwide leader in the development of advanced driver assistance systems (ADAS), which are routinely found in modern electric vehicles (EVs) and internal combustion engine (ICE) vehicles. Their proprietary EyeQ system-on-chips (SoCs) primarily utilizes a vision-based modality using artificial intelligence (AI) to interpret the environment with cameras.

This gives them a cost advantage over original equipment manufacturers (OEMs), including Ford Motor Co. NYSE: F, General Motors Co. NYSE: GM, Volkswagen AG OTCMKTS: VWAGY, Nissan, BMW, Honda, Audi and Toyota Motor Co. NYSE: TM. This makes them more applicable for mass-produced vehicles, which is why they control around 70% of the market in the auto/tires/trucks sector.

Mobileye’s True Redundancy technology uses two redundant subsystems that also include radar and lidar sensors, providing a failsafe since each subsystem develops its own model of the environment.

The Inventory Glut Normalization May (Finally) Be Concluding

The post-pandemic surge and supply chain disruptions caused OEMs to order an abundance of Mobileye SoCs, fueling an inventory glut in the following years. Mobileye’s customers have been working through their inventory glut as investors have been frustratingly waiting for the normalization to conclude with each earnings report. The EV recovery in China has helped to speed up the process with the successful launch of its SuperVision system. Its third-quarter 2024 earnings report offers a material glimmer of hope confirming the conclusion of normalization.

Mobileye CEO Prof. Amnon Shashua stated, “We view the 11% sequential increase in revenue as compared to Q2 as another sign that inventory at our customers has normalized. We believe our shipment volumes in Q3 were consistent with end-market demand.” Incidentally, CEO Shashua had earlier purchased 631,963 shares of MBLY common stock between $15.50 to $17.00 for $10.4 million, driving up insider buying alerts several months ago.

Locking in Its Top 10 Customers With Add-On Design Wins Into the 2030s

Mobileye’s top 10 customers account for over 80% of its total volume and 50% of current global auto production. Mobileye has ADAS add-on design wins with all 10 automakers, and the majority of the projects extend their business into the early 2030s. While shipments to these automakers were down 4% YoY, this was outperforming the automaker’s production decline of 9% YoY.

The Volkswagen Group production plans on progressing on track, which includes SuperVision, Chauffer and Drive and the recent installation of its next-generation EyeQ6-based software and hardware stack in test vehicles.

The Turnaround Is Materializing

Mobileye reported Q3 2024 EPS of 10 cents, which was in line with consensus estimates as revenue dropped 8.3% YoY to $486 million, which firmly beat consensus estimates of $465.27 million. However, revenue did increase 11% YoY sequentially from its second quarter.

Its Mobileye Drive mobility-as-a-service (MaaS) Robotaxi product continues to make progress as it is near closed user-group testing with Volkswagen Commercial Vehicles, which is the lead brand for autonomous driving.

Cost Cutting and Key Objectives Moving Forward

Mobileye is discontinuing its expensive in-house LiDAR development and instead using third-party due to the vast improvement of its next-gen computer vision stack and in-house imaging radar technology. This will help adjusted operating expenses fall below the Q3 annualize level of just over $1 billion in 2025. Q3's strong operating cash flow of $125 million should be similar to Q4 2024, which was nicely above $70 million in the same period last year.

Strategic objectives for the future include securing and expanding its long-term ADAS position with core customers. Mobileye seeks to deploy EyeQ5-based SuperVision in China through ZEEKR Intelligent Technology Holding Ltd. NYSE: ZK, which will serve as a proof point and beachhead for advanced product growth for its global clients. SuperVision is the bridge to autonomous and hands-free driving. It hopes to develop and launch EyeQ6-based products, which include the integration of cutting-edge AI technology in the software stock on time.

MBLY Stock Forms a Cup Pattern 

A cup pattern starts at the cup lip line, serving as a peak as shares fall to a swing low to form a rounding bottom that rises back to the cup lip line. From here, the stock may pull back to a higher low before staging another rally, which can form a cup and handle breakout if it rises through the cup lip line.

MBLY’s cup lip line also acts as the lower gap fill level at $18.45. MBLY formed a swing low at $10.48 and formed a rounding bottom that staged a rally back up towards the cup lip line propelled by the earnings report gap. The daily anchored VWAP is at $12.95. The daily RSI rose to the 66-band. Fibonacci (Fib) pullback support levels are at $14.29, $13.16, $11.92, and $10.48.

MBLY’s average consensus price target is $23.25 implying a 49% upside, and its highest analyst price target sits at $53.00. It has 11 analysts' Buy ratings, 11 Hold, and three Sell ratings. The stock has a 22.13% short interest.

Actionable Options Strategies: Bullish options investors enter MBLY on a pullback using cash-secured puts at the Fib pullback support levels or take a bullish call debit spread for less capital than owning the stock while minimizing the downside with capped upside gains.