Nvidia Corporation and ARM Holdings Plc – 2 Stealth Winners in Driverless Cars (NVDA, ARMH)

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Last Wednesday, Alphabet ( GOOGL , GOOG ) was deemed victorious in its battle to introduce the driverless car as a mainstream product.

Nvidia Corporation and ARM Holdings Plc - 2 Stealth Winners in Driverless Cars (NVDA, ARMH)

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How so? The National Highway Traffic Safety Administration officially recognized that a driverless car still has a "driver" in the legal sense. It's just that in driverless cars, the driver isn't flesh and blood.

While it's a ho-hum difference to the layperson - even those who love the idea of a driverless car - it was a big victory.

Up until that point, driverless cars could not take to the roads because they didn't technically fit the criteria for a car as laid out by the NHTSA. Specifically, there were no pedals or steering wheel, and therefore no human driver … a premise many automobile standards rely on.

Long story made short, the NHTSA is reworking its rules to acknowledge its definition of "driver" is antiquated , which in turn means the driverless vehicle in development is eligible for approval to be used on the Unites States' roadways.

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While it's a win for Alphabet to be sure, the news may have been an even bigger victory for a handful of companies that up until this point were hitting a proverbial roadblock in making the driverless car the automobile of the future.

2 Unsung Driverless Car Stocks

Yes, Alphabet benefits now that the NHTSA has finally knocked down a key technical hurdle. If Apple ( AAPL ) is indeed working on driverless cars as has been rumored , the news benefits it as well.

For investors looking to tap into the advent of the driverless car, however, AAPL and GOOGL are possibly among the least optimal ways of doing so.

Both companies have their hands in so many other ventures that even if they do bring driverless cars to the market, it's not going to make a huge dent in their top and bottom lines. The real opportunity is in the companies that make the hardware and software that make driverless cars work, and arguably the two best underappreciated bets on that front are ARM Holdings plc ( ARMH ) and Nvidia Corporation ( NVDA ).

That wasn't a misprint: Not the usual visual auto-sensor names like Ambarella ( AMBA ) or Mobileye NV ( MBLY ), but chipmakers Nvidia and ARM Holdings.

Most investors may not realize it, but Nvidia's Drive PX processor can handle 24 trillion learning operations per second . That's ten times faster than the company's previous auto-driving chip, and fast enough for Volvo to put the Drive PX on board its new vehicles.

The chip system itself is already in use by 50 other companies. While they're using it for different purposes than driverless cars (so far), it's a proven platform.

The real game changer that pits Nvidia in a class of its own, though, it the fact that the Drive PX platform can do what has been dubbed "deep learning" - that is, remembering real on-the-road driving experiences.

Teaching driverless cars to autonomously navigate used to take months, if not years. Now it takes hours, and it's always getting better.

As for ARM Holdings, even as the slowdown in the smartphone market has broadly taken a toll on most technology component suppliers, ARM Holdings has managed to shrug off that slowdown. Its revenue was up 14% last quarter and its earnings grew 17% on a year-over-year basis.

The curious part? It licensed technologies to nine different automotive technology companies last quarter . And ARM still hasn't technically turned up the heat on its driverless car capabilities yet.

ARM Holdings is also a compelling driverless car play - and technology play as a whole - for another understated reason. That is, it's not a manufacturer as much as it is a designer of high-performance chips and semiconductors.

Rather than take on the risk and expense of making and marketing them, it licenses that technology to others. That model is a big part of the reason ARMH did so well last quarter while other smartphone-tech companies did not.

In that driverless cars are apt to evolve quickly, ARM Holdings is right where it wants to be - not making the equipment (where the bulk of the liability is), but designing it.

Bottom Line on Driverless Cars

None of this is to suggest there won't be other ancillary, overlooked names on the receiving end of the advent of driverless cars.

It is to say, however, that most investors have been ignoring the fact that Nvidia and ARM Holdings can leverage their existing technologies and capabilities better than most can to address the driverless car market.

A market that Alphabet just took everyone one big step closer to enjoying.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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The post Nvidia Corporation and ARM Holdings Plc - 2 Stealth Winners in Driverless Cars (NVDA, ARMH) appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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