Intel stock jumps on plans to spin off self-driving car business Mobileye

Yahoo Finance's Julie Hyman and Brian Sozzi discuss Intel shares jumping on plans for a potential $50 billion Mobileye IPO.

Video transcript

JULIE HYMAN: Now another company that we are watching this morning. I mentioned chips yesterday and what we were seeing there. We're talking EVs. Here's something that brings them together. That is Intel.

Intel says it is indeed going to spin off and list shares of its Mobileye self-driving car business and aims to do that by the middle of next year. Brian Sozzi, you watch Intel and Mobileye for that matter very, very closely here. Talk to us about the rationale for this by Intel.

BRIAN SOZZI: Yeah. Top ticker on the I/O Finance platform right now is Intel, Julie. There are a couple of reasons I think for this and why CEO, Pat Gelsinger, is doing it. First and foremost, he didn't acquire Mobileye. Mobileye is a series of assets that Intel bought in 2017.

First it was the Mobileye business that former CEO, Brian Krzanich, I still remember covering that deal, that he bought for 15.3 billion in 2017. Then new CEO at the time, Bob Swan, came out and bought Moovit, which is a data collection service usually for mostly used for traffic data. And they bolted that into the Mobileye business. Both of those assets were consumed in 2017. Moovit was acquired for $900 million.

So first and foremost, this is Pat Gelsinger moving away from a strategy created by his two predecessors. Number two, you have an Intel very thirsty on trying to build out new production capacity for its chips or what they call foundries. Mobileye could be valued at over $50 billion in the marketplace. That is a huge return in a huge chunk of change a Gelsinger could go out there and use to build his various foundries and make investments in what he sees as the future of Intel, which is just making chips.

And then let's keep in mind, this is not some lame asset here owned by Mobileye. It is a surging business inside the company that is in fact profitable. I'm looking at a note from Wells Fargo out this morning, which they are noting the potential for a $50 billion plus valuation of Mobileye. They're noting that revenue from Mobileye on a trailing 12 month basis, or in other words year to date, 1.36 billion in sales, $442 million in operating profits, which really reflects what many see as a leadership position in the autonomous technology market for this company.

- Yeah. And for comparison, that $50 billion possible valuation, compare that to the $15 billion price tag that Intel paid for it in 2017. And then even if you back up to 2014, where before that transaction was done, actually Mobileye was publicly traded its IPO in 2014, raised about $5 billion. So just over the course of seven years. This is a company that has essentially tenfolded increased in size and valuation here.

And that's no surprise, given the need for chips. And in fact, the second paragraph of the release from the company that was announcing this, noted that the share of semiconductors is expected to be 20% of a premium vehicle's total bill of materials by 2030. It's not like cars have one chip in them as they continue to get smarter, many components, many parts. Almost all the parts of the car will have to be tied to a semiconductor at some point. That's one big reason why perhaps Apple also wants to get into space. And one big reason why Mobileye could also be a hot stock when it ultimately does hit the street as well.

JULIE HYMAN: Yeah. And I think the fact that it is that top trending ticker today gives you a little hint as to the demand there could be potentially for those shares when they do start trading.