In this piece, we will look at the ten best self-driving technology stocks to buy according to hedge funds.
The autonomous driving industry is, along with machine learning and image processing, one of the earliest adopters of artificial intelligence. While the post-2022 hype surrounding AI has led to the technology catching the general public’s attention, what ChatGPT debuted was a subset of AI called generative artificial intelligence. Other forms of AI, such as machine learning, have been employed for far longer, and as we alluded to above, one form is autonomous driving.
Autonomous driving uses machine learning to compute data gathered through sensors or cameras on a car. The machine learning algorithms are trained using vast amounts of data already gathered. Several firms already have working autonomous driving platforms. These include Elon Musk’s car company, Google Waymo, and GM’s Cruise platform. Yet, even though all of them are autonomous driving platforms, they also represent a key division in the industry.
Before we get to the biggest controversy in the autonomous driving industry, it’s important to first get a sense of the industry’s value. According to research from Mordor Intelligence, as of 2024, the industry is worth a cool $41 billion. By 2029, the firm expects it to touch $144 billion by growing at a compounded annual growth rate (CAGR) of 22.75%. Analysts believe that one of the biggest drivers of the autonomy industry will be autonomous ridesharing. As per McKinsey, 56% of consumers surveyed in 2022 indicated that they would be willing to share self-driving vehicles provided that they did not increase travel time and cut down costs by 20%. The respondents also wanted Level 4 autonomy in their future cars, which indicates that the market for self-driving vehicles exists among consumers.
But what about businesses? After all, the corporate sector only invests in technologies if it’s confident about making a return and generating operating efficiencies. On this front, additional research from McKinsey shows that self-driving vehicle software could post margins of up to 15% while hardware could have margins of 10%. Autonomous vehicle services create margins of 14%, believes the research firm, as it adds that 96% of businesses surveyed “saw strategic partnerships as crucial to autonomous-vehicle development, and more than half (56 percent) thought the relationship between OEMs and end users (such as logistics carriers) is already changing.”
Cycling back to the division in the autonomous driving industry, this has divided the sector between using cameras to gather visual data or using LiDAR sensors instead. On the former front, Elon Musk created quite a bit of turmoil in 2019 when he announced that firms that use LiDAR for autonomous driving were unwise. Musk persisted with his opinion in a later interview given at an Axel Springer event. He explained that:
“We believe just cameras are the way to go. We don’t use LiDAR at all. The entire road network is designed for passive optical, it’s essentially vision. So, in order to make a car drive properly, you have to solve vision. And, at the point at which you solve vision, you really don’t need any other instruments. Like a careful driver, a human driver can drive with an extremely good track record. Unlike a human, the computer does not get tired. It has 360 degree surround cameras. It’s got three cameras pointing forward. So it’s like being able to see with the eyes in the back of the head. So it’s really, vision is the way to go. There’s some value to active optical for wavelength that’s occlusion penetrating. So it can see through fog, or rain, or dust. But it. has to be high resolution. Such that you can rely on, for example radar at roughly four millimeter wavelength. This is good for occlusion penetration. But it needs to have enough resolution to know you braking for a real object and not just a bridge, or a manhole cover, or something like that.”
However, while Musk is convinced that LiDAR isn’t worthwhile for autonomous driving, executives at Google’s Waymo business beg to differ. At a developer event in 2019, Waymo’s Principal Scientist Drago Anguelov commented “You can imagine doing driving just with cameras, but you would need the best camera systems to really handle it. So that’s a very big bet that you can achieve it. And it’s very, very risky, and it’s not necessary.” He added that his firm had better data courtesy of LiDAR which helps it “build the right simulation environments.” CTO Dmitri Dolgov shared that using LiDAR was “all about taking the best of both worlds and combining them in an intelligible way to have the most capable and the safest system that you can have.”
So, while Musk and the autonomous driving industry battle it out, we decided to look at which autonomous driving stocks hedge funds are piling into. The industry hasn’t performed too well in 2024 as a broader automotive and EV slowdown has meant that orders for self-driving equipment providers have slowed down. The slowdown has led to some stocks losing as much as 58% year-to-date, and as you read on, you’ll understand why.
Photo by ThisisEngineering RAEng on Unsplash
Our Methodology
For our list of the best self-driving technology stocks, we ranked the holdings of Global X’s autonomy ETF with significant exposure to autonomous driving by the number of hedge funds that had bought the shares during Q3 2024 and picked out the top stocks. For an alternative list that focuses on the best autonomous driving car companies, please visit 10 Best Autonomous Driving Stocks to Buy.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. NXP Semiconductors N.V. (NASDAQ:NXPI)
Number of Hedge Fund Investors In Q3 2024: 44
NXP Semiconductors N.V. (NASDAQ:NXPI) is a semiconductor manufacturing company with wide exposure to the automotive industry. The firm provides hardware for autonomous diving systems, and some of its products include processors and radar transceivers used in ADAS systems. NXP Semiconductors N.V. (NASDAQ:NXPI) benefits from the fact that the semiconductor industry has some of the highest barriers to entry in the world. Therefore, the firm enjoys a sizable moat even during tumultuous times such as 2024 which has seen its shares lose 1.9% year-to-date. However, the fact that NXP Semiconductors N.V. (NASDAQ:NXPI) relies on nearly 57% of its sales from the automotive industry means that the firm has to wait for a recovery in its key market before its shares can see positive catalysts.
During the Q3 2024 earnings call, NXP Semiconductors N.V. (NASDAQ:NXPI)’s shared key details about inventory management which is key to the firm’s future:
“Indeed, we were taken by some surprise, I would say, in the — say, in the August time frame during quarter three by a broadening weakness in the Industrial and IoT market pretty much across the board, which led to a much more cautious stance on their side, Ross, relative to also their inventory positions. And the same is now broadening when you ask for the guidance for Q4, it’s clearly broadening into the automotive segment. There I would exclude China from these discussions. I think you’ve heard similar from our peers. China actually appears to be quite strong. Our growth was led by China in quarter three and the sequential growth. And also in quarter four, China actually will grow from a sequential perspective over quarter three across automotive and Industrial and IoT.
But that weakness and that customer behavior you were asking for is really specifically strong now in the fourth quarter in the Western Automotive and Industrial segments. Their customers, and you saw all the profit warnings from the car OEMs, for example, where now the Tier 1s are aiming to further reduce their inventory. So our trends to under ship against natural end demand is becoming even tougher, Ross. That’s how I would characterize the customer behavior. It almost felt like everybody from them kept up their forecast and then suddenly, August, September, they started to drop. And that is now ripping through to the Tier 1s, which are becoming even more cautious on what they want to hold from NXP in terms of inventory. You know that we have talked about this extended inventory digestion before, but that has now extended because of the end market weakness.”
9. Coherent, Inc. (NASDAQ:COHR)
Number of Hedge Fund Investors In Q3 2024: 51
Coherent, Inc. (NASDAQ:COHR) is a laser optics manufacturer headquartered in Pennsylvania. Its products provide the firm with direct exposure to the autonomous driving industry since LiDAR and other sensors rely on laser optics to function. Coherent, Inc. (NASDAQ:COHR) is one of the top-performing stocks on Wall Street in 2024 as its shares are up by 149% year-to-date. The optimism is driven primarily because of the firm’s exposure to the data center industry. AI expansion benefits from data center growth, and firms like Coherent, Inc. (NASDAQ:COHR) cash in on their ability to provide networking and optical communications products for these facilities. One of the firm’s most important products is its VCSEL-based modules that are used in LiDAR systems. Continued strength in the data center market and a recovery in the automotive market are key to driving its share price.
Coherent, Inc. (NASDAQ:COHR)’s management commented on how weak automotive demand affected its revenue in the latest quarter during the Q1 2025 earnings call:
“First quarter revenue was 1.35 billion, an increase of approximately 3% sequentially and 28% year-over-year. From a segment perspective, networking revenue increased 12% sequentially and 61% year-over-year due to AI data center demand. Laser segment revenue decreased 2% sequentially and increased 4% year-over-year, reflecting relatively stable end market demand. Material segment revenue decreased 15% sequentially and 3% year-over-year, primarily due to weak automotive end market demand. Our first quarter non-GAAP gross margin was 37.7%, an increase of 49 basis points compared to the prior quarter, and an increase of 293 basis points compared to the year-ago quarter. The improvements in gross margin were driven by higher revenue volume, favorable mix, and yield improvements.”
8. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Investors In Q3 2024: 54
Baidu, Inc. (NASDAQ:BIDU) is a Chinese technology giant that is a key player in the country’s autonomous driving industry. The firm’s Apollo Go Robotaxi service is one of the most well-developed in the world. Unlike its US counterparts, Baidu, Inc. (NASDAQ:BIDU) has already rolled out a working service, as it was testing as many as 500 vehicles in China as of July 2024. The firm scored another win in November when it secured approval to test the service in Hong Kong. Since Hong Kong is one of the most prosperous regions in the world, a successful commercial rollout there could drastically reshape Baidu, Inc. (NASDAQ:BIDU)’s autonomous driving future. The firm also plays a key role in the Chinese machine-learning sector through products such as PaddlePaddle. Given that machine learning is essential to autonomous driving, Baidu, Inc. (NASDAQ:BIDU)’s software strengths can augment its autonomy service. Yet, semiconductor tensions between the US and China could deprive it of key chips to run software on, and pessimistic investor sentiment surrounding Baidu, Inc. (NASDAQ:BIDU)’s stock is reflected through its forward P/E ratio of just 7.92 times.
Baidu, Inc. (NASDAQ:BIDU)’s management shared important details about its autonomous driving platform during the Q3 2024 earnings call. Here is what they said:
“Turning now to intelligent driving, we’ve reached another significant milestone. The sixth-generation of our autonomous vehicle, RT6, is now operating on public roads in multiple cities in China. This not only expands our vehicle lineup, but also reaffirms our commitment to scaling operations and providing users with safer, more affordable and comfortable mobility experiences. Following our achievements of 100% fully driverless operations in Wuhan last quarter, the proportion of fully driverless operations nationwide surpassed 70% in the third quarter and 80% in October.
Recently, we have taken another step forward in expanding fully driverless operations. We are delighted to share that in October, we achieved 100% fully driverless operations in Chongqing, where we currently operate a growing fleet of autonomous vehicles. We continued to scale up our services in third quarter, with Apollo Go providing about 988,000 rides to the public nationwide, representing year-over-year increase of 20%. The cumulative rides provided to the public surpassed 8 million in October, further solidifying our leadership in smart mobility. We’re fully confident that our autonomous driving technology has achieved technical maturity, with proven safety and reliability through extensive testing and real-world operations. While our technology is ready for wider deployment, safe and responsible autonomous driving requires a solid foundation of a harmonized regulatory framework.”
7. Westinghouse Air Brake Technologies Corporation (NYSE:WAB)
Number of Hedge Fund Investors In Q3 2024: 54
Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is an interesting stock pick when it comes to autonomous driving stocks. This is because the firm is one of the oldest rail companies in the world. Its business model also means that while Westinghouse Air Brake Technologies Corporation (NYSE:WAB) might not be making self-driving cars anytime soon, the firm can nevertheless play an important role in the autonomous rail industry. On this front, Westinghouse Air Brake Technologies Corporation (NYSE:WAB) completed a $11 billion merger with GE’s transport business to focus on autonomous trains. The firm currently allows operators to remotely control trains, which set it up well for developing autonomous systems in the future. In the short term though, Westinghouse Air Brake Technologies Corporation (NYSE:WAB)’s performance is dependent on the broader economic health that drives up the demand for railroad transportation.
Carillon Eagle Mid Cap Growth Fund mentioned Westinghouse Air Brake Technologies Corporation (NYSE:WAB) in its Q3 2024 investor letter. Here is what the fund said:
“Westinghouse Air Brake Technologies Corporation (NYSE:WAB): (Westinghouse Air Brake Technologies) is a global provider of locomotives, equipment, systems and services for both the freight and transit rail industries. The company’s shares have performed well as Wabtec is at the forefront of the modernization of the rail industry. Robust customer demand for new locomotives, modernization of older equipment, and next-generation digital solutions are resulting in a strong order pipeline that gives Wabtec what we consider to be a great deal of visibility into continued profitable growth in the future.”
6. General Motors Company (NYSE:GM)
Number of Hedge Fund Investors In Q3 2024: 64
General Motors Company (NYSE:GM) is an iconic American car manufacturer that is one of the biggest players in the internal combustion car industry. The firm’s Cruise platform also makes it a key player in the autonomous driving industry. General Motors Company (NYSE:GM)’s Cruise, along with Tesla’s FSD and Google’s Waymo is one of the most well-developed self-driving platforms in the US. General Motors Company (NYSE:GM) is also making key inroads in the robotaxi service, as the firm has partnered up with Uber to launch a trial service in 2025. Its sizable resources, as evidenced by $18.9 billion in cash and equivalents provide it with sufficient room to fund risky and capital-intensive technologies like autonomous driving. As of June 2024, General Motors Company (NYSE:GM) had invested a whopping $8 billion in Cruise and generated losses exceeding $3 billion. Subsequently, not only does it have to drive profit from the platform to convince investors about the merit of funneling billions in a business, but its investments are also crucial for driving the autonomous industry forward.
General Motors Company (NYSE:GM)’s management commented on Cruise during the Q3 2024 earnings call. Here is what they said:
“Cruise expenses were $400 million in the quarter, down $350 million from a year-ago, reflecting a reduction in operational activities. We are continually looking for opportunities to prioritize further expense reductions even as we continue to make progress.”
5. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Investors In Q3 2024: 68
Intel Corporation (NASDAQ:INTC) is one of the few integrated semiconductor manufacturers in the world which allows it to design and manufacture chips. It operates in the autonomous driving market through its processors and its Mobileye subsidiary. Intel Corporation (NASDAQ:INTC)’s Gaudi processors can be used to train autonomous driving models, which makes the firm one of the few in the world that can design and make chips for these applications. Additionally, Intel Corporation (NASDAQ:INTC) subsidiary Mobileye is a key player in the ADAS systems market. These systems are indispensable for autonomous driving cars, and Mobileye provides businesses with a one-stop shop to buy and use them in their products. However, 2024 has been full of turbulence for Intel Corporation (NASDAQ:INTC) and Mobileye. While the former has struggled with a slowing PC market and its turnaround efforts, the latter has had to stop internal LiDAR development and lay off employees as it battles a slow automobile market.
ClearBridge Investments mentioned Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter. Here is what the fund said:
“While the market environment clearly was a headwind in the third quarter, several of our large positions also faced challenging conditions, which negatively impacted results. In the information technology (IT) sector, Intel Corporation (NASDAQ:INTC) has come under additional pressure due to continued softness in the company’s core PC and server markets as well as concerns on the company’s longer-term competitive position. While Intel’s turnaround is not happening overnight, we are constructive on the outlook into 2025: the company’s product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.”
4. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Investors In Q3 2024: 74
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the largest semiconductor designers in the world. Its products are widely used in the smartphone industry, and the firm also has a presence in the automobile market through platforms such as CV2X. QUALCOMM Incorporated (NASDAQ:QCOM)’s expertise in semiconductor design and its broad product portfolio which ranges from CPUs and GPUs to neural processors has also enabled it to develop solutions for ADAS systems. The firm caters to this market through its Snapdragon Ride products which allow for navigation and obstacle detection among other features. However, QUALCOMM Incorporated (NASDAQ:QCOM) generates the majority of its revenue through smartphones which makes it vulnerable to the cyclical market. Advances in semiconductor fabrication and British chip design house Arm’s strategy of providing off-the-shelf solutions to businesses also create risks to QUALCOMM Incorporated (NASDAQ:QCOM)’s business.
Aristotle Capital Management mentioned QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter. Here is what the fund said:
“Qualcomm, a leading wireless communications technology company, was the largest contributor for the quarter. After a period of weaker global demand for smartphones (driven by a slowdown in China) and elevated channel inventory, demand from Chinese handset manufacturers accelerated 40% year‐over‐year. More importantly, in our opinion, Qualcomm continues to execute on a previously identified catalyst of shifting its business mix beyond smartphones. The company announced increased progress for its automotive and Internet of Things (IoT) solutions. Within auto, the increase in vehicle content has resulted in 35% year‐over‐year revenue growth, with a design win pipeline of ~$45 billion, keeping the company on track to achieving ~$4 billion in auto‐related revenues by 2026. In recent years, despite persistent threats of insourcing from large clients (most notably Apple), Qualcomm has been able to retain its high market share in handsets while simultaneously expanding in non‐smartphone devices. We believe this progress is a testament to Qualcomm’s history of high (and productive) R&D spending, resulting in technological superiority. We believe Qualcomm’s technologies will continue to benefit as the world stays on a path toward a proliferation of connectivity between varying devices and as AI applications extend from the cloud to on‐device.”
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Investors In Q3 2024: 99
Tesla, Inc. (NASDAQ:TSLA) is a leading player in the autonomous driving industry and one of the hottest firms in the sector. Its FSD assisted driving platform is among the industry leaders in America, and FSD’s success is also baked into the firm’s hypothesis. Through FSD and its Cybercabs, Tesla, Inc. (NASDAQ:TSLA) aims to unlock new markets and diversify away from being an EV manufacturer. Consequently, the firm has to deliver on these fronts or see trouble with the share price as was evident in October after the stock fell by 9% after Tesla, Inc. (NASDAQ:TSLA)’s Cybercab event failed to impress investors with the specifics. However, the stock is up by a whopping 52% since the November election due to CEO Elon Musk’s proximity with President-elect Donald Trump and the market’s belief that this can generate positive catalysts for Tesla, Inc. (NASDAQ:TSLA). The firm also benefits from having 1.3 billion miles of data to train autonomous systems and computing resources to crunch its algorithms.
Baron Funds mentioned Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter. Here is what the fund said:
“As discussed in the Fund’s prior shareholder letter, the fears about Tesla’s products were misplaced. Instead of the company being exclusively dependent on limited vehicle models and software advancement, the company announced it will more rapidly introduce products that appeal to a wider audience. It also demonstrated that its price reductions were the result of efficiencies rather than only to spur demand. Margins exceeded expectations. And the company’s integration of its hardware with proprietary AI software should facilitate full self-driving capabilities and subsequent new revenue streams. This integration of hardware with software creates a dynamic growth company as it more fully explores its potential with Optimus, humanoid robotics. The combination of these catalysts resulted in Tesla’s stock increasing meaningfully and rapidly in the second half of the quarter. This stock price momentum has continued into the next period.”
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors In Q3 2024: 193
NVIDIA Corporation (NASDAQ:NVDA) is the world leader in designing AI GPUs – a fact that has propelled its shares by more than 700% since OpenAI publicly released ChatGPT. The firm also has a presence in the autonomous driving market since the underlying design technologies of its GPUs can also be used to compute autonomy workloads. NVIDIA Corporation (NASDAQ:NVDA) operates in the autonomous market through its NVIDIA Drive platform. This platform enables businesses to compute workloads through the Orin SoC, use NVIDIA Corporation (NASDAQ:NVDA)’s DRIVE AGX software, and rely on a cloud infrastructure for broader computing. As a whole though, the firm’s hypothesis is dependent on the demand for accelerating computing hardware for enterprise computing workloads. NVIDIA Corporation (NASDAQ:NVDA) leads the market through its product design, but supply constraints and a cooling down in AI interest or profitability pushed out in the future could create troubles for the firm.
Polen Capital mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter. Here is what the fund said:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
1. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Investors In Q3 2024: 202
Alphabet Inc. (NASDAQ:GOOGL) is one of the largest technology companies in the world. While it relies primarily on its search engine and advertising to account for nearly 70% of its revenue, the firm also plays a key role in the autonomous driving industry through its Waymo business. Waymo is one of the few companies in the US whose cars regularly travel on roads to finetune their self-driving capabilities. Yet, Alphabet Inc. (NASDAQ:GOOGL) and Waymo have also been dealt setbacks from the inherent risks of autonomous driving platforms being vulnerable to accidents. On the flip side, Waymo’s prowess with self-driving also provides Alphabet Inc. (NASDAQ:GOOGL) with a commanding position in a market that can grow in the future. As a whole, the narrative depends on Alphabet Inc. (NASDAQ:GOOGL)’s dominance in the search engine market and its ability to fend off any legal troubles that might head its way.
Conventum – Alluvium Global Fund mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOG), ie Google/YouTube, having returned 20.8% in the June quarter, gave a fair bit of that back by falling 8.8%. Its results seemed pretty positive, and appeared to beat expectations. Management claims its AI integration into its search business is working well, and the margin expansion from costs out is expected to continue. Market chatter suggests that the selloff stems from concerns about the high capital spending on servers and data center equipment. Alphabet has made it clear that this spending is necessary, and somewhat defensive as it can’t risk losing the AI war (a “build it, and they will come” approach). Also, the new Department of Justice case against it probably did not help matters. Nonetheless, we saw no need to adjust our estimates. We wrote last quarter that it traded at a premium to our valuation, but not so much as to warrant selling. With the share price falling and the premium reducing, our view is unchanged. It represents 4.4% of the Fund.”
GOOGL is an autonomous driving stock that hedge funds are interested in. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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