The grandaddy of the American auto industry is now fully embracing 21st Century digital tech.
And on the flipside, Silicon Valley is taking its well-earned place at the heart of the new and modern auto industry
See, cars today are basically computers running on four wheels and equipped with a drivetrain.
But the software drivers use to interact with their in-dash displays are often very clunky. It’s been a problem because they run on proprietary software that can’t keep up with Silicon Valley’s ace coders.
So, Ford Motor Co. (F) is getting a software makeover. The nation’s oldest carmaker has announced it will equip its vehicle displays with a suite of Android apps from Alphabet Inc. (GOOGL) starting in 2023.
And while I applaud this move, I think there is a much better way to cash in on the $13 billion auto software market growing at 15% a year.
It’s a firm that trades at a fraction of GOOGL’s $1,900 share price.
21st Century Driving
Now then, many drivers are already using Android apps in their cars. But they have to plug in their smartphones to bypass the cars’ operating systems.
The idea here is for Ford to have vehicle information, display screens, and informatics with a native Android feel. That will make operating the cars more like using a smartphone.
I believe this is a big step in the right direction. But I also think the tie-up between Ford and Google is a little too limited for my money.
When I see a profitable trend like this, I look for a supplier firm that gives us much more coverage for the $3.6 trillion global auto market.
And that is just what we have with one of the world’s great software firms. It’s one that has experienced an amazing reinvention across almost exactly six years.
See, back on February 4, 2014, Satya Nadella took over as CEO of Microsoft Corp. (MSFT). At the time, the company was stuck in neutral and was basically dead money for a decade.
I was one of the first analysts to predict a major transformation in the making. And that’s exactly how events have played out.
Just take a look at how aggressively it has moved into the auto sector. Nameplates like Audi, Porsche, and Volvo Group rely on the firm’s Azure cloud computing platform and other software tools for design, manufacturing insights, and mobility services.
Now comes an exciting new deal in the driverless car space. Mr. Softy recently joined a group that is investing $2 billion in San Francisco-based Cruise, a startup majority-owned by General Motors Co. (GM).
The reason why Cruise and GM want Microsoft in on this driverless-car company is simple.
The startup has been running trials of its AI driving tech on the streets of San Francisco for years. Cruise’s goal is to launch a driverless taxi service, as well as commercial delivery.
For both, Cruise’s vehicles will generate gigabytes of data – whether it’s video, audio, passenger input, traffic, or all of the above.
Bringing in the Experts
Now, GM and the two other car heavyweights from Detroit may be good at making cars.
But Big Data isn’t really their thing.
That’s where Microsoft comes in. As part of Microsoft’s investment into Cruise, the startup will use Microsoft’s Azure cloud service to store and analyze data.
The deal also has GM committing to Microsoft’s Azure as their preferred cloud provider.
I believe this is a great deal for Microsoft because it’s yet another growth avenue for its Azure cloud business.
It also shows how Microsoft is forging strategic partnerships to ensure future growth for itself.
For example, last October I told you about Microsoft’s tie-up with Elon Musk’s SpaceX, also to provide cloud computing.
That deal was about Microsoft helping run SpaceX’s ultra-fast Starlink satellite Internet service, and selling co-sell Azure’s Orbital cloud service with Starlink to corporate clients.
The Pentagon may also be interested, as both SpaceX and Microsoft already have contracts with the U.S. military. Microsoft’s deal is a 10-year, $10-billion contract to run the Pentagon’s massive Joint Enterprise Defense Infrastructure (JEDI) cloud that will unite every soldier, ship, and airplane on a single cloud.
Starlink looks like a perfect fit for that, given its high speed and reliability and eventually global coverage.
In other words, Microsoft keeps finding new avenues for growth way beyond the personal computer.
Earlier, I noted that the stock is a relative bargain compared to GOOGL.
Since the market rebounded last March 23, GOOGL is up 81%. But Microsoft is close on its heels with a 77% gain.
But with earnings growth of 22% a year, MSFT has more than 83% faster growth, meaning they are on pace to double nearly twice as fast as GOOGL.
That’s why I believe Microsoft is a relative bargain. It trades at less than 12.5% of GOOGL’s roughly $1,900 share price.
With a 22% annual profit growth, earnings are on pace to double in just 3.25 years, compared with six years for GOOGL.
Add it all up and you can see why I believe Microsoft is the better auto software play.
And it’s all because Microsoft is becoming the power behind the cars that are driving us on the road to wealth.
This kind of partnership is also a perfect example of the fact that, if you want to learn how to do something the right way, you should go to the top experts in the field.
When it comes to investing in blue-chip companies, including some of the huge names that make up the absolute bedrock of big tech, that expert is Tom Gentile.
Not only that, he knows how to do it with only a fraction of the cost and risk. Since April 2020, his investment strategy has made 23 picks, and every single one of them has been a winner.
You can use that same strategy for yourself. All you have to do is click here to see how.
Cheers and good investing,
Michael A. Robinson