Early this morning, news broke on Haaretz.com that Intel was going to announce a takeover of Mobileye for a whopping $15.3 billion. Intel is flexing its muscle and showing its intent to enter into the autonomous driving market.
The announcement set the price tag at $15.3 billion or $63.54 per share in an all-cash deal.
"The combination is expected to accelerate innovation for the automotive industry and position Intel as a leading technology provider in the fast-growing market for highly and fully autonomous vehicles. Intel estimates the vehicle systems, data and services market opportunity to be up to $70 billion by 2030," Intel announced.
The deal is expected to close by the end of 2017 and is also expected to be immediately accretive to Intel's earnings from the get-go.
Shares of Mobileye closed at $47.27 per share this past Friday and are currently trading at $61 and change per share in pre-market trading. With analysts estimating revenues of $500 million for 2017 for Mobileye, this is not a cheap acquisition by any means for Intel. We are talking at a price tag multiple of 31x estimated revenues of $500 million for 2017.
However, price tag aside, it immediately allows Intel to step into the big league in the autonomous driving market.
On the flip side, investors are looking at this announcement as a negative for Nvidia.
In fact, not only does the Intel takeover of Mobileye validate Nvidia's own dominance and expertise in the autonomous driving sector but also proves that Nvidia shares are currently grossly under-valued at the moment.
Wall Street analysts are currently expecting Nvidia revenues of $9 billion for FY18. Nvidia currently has a market capitalization of $58 billion, which gives us a revenue multiple of 6.4x, a fraction of what Intel just paid for Mobileye.
Think about it for a bit.
Shares of Nvidia are very cheap and I remain a buyer.
(Long NVDA, long and short options)