Intel Just Bought a Self-Driving Tech Company for $15 Billion. Here’s Why

Intel ($INTC) makes computer processors. They’re the world’s largest processor company, having invented most of the processor standards, patents, and everything else that makes a computer work. They sell millions of processors a year, while also making assorted computer components, cell phone modems, and other silicon-based products used by billions.

Intel, however does not make mobile phone processors. The chip in your iPhone or Android device was designed by ARM Holdings (a SoftBank company) and made by Samsung, Qualcomm ($QCOM), and several other companies in the components space. By not selling mobile phone and tablet processors, Intel lost out on billions in potential revenue, especially since mobile devices are selling lot hotcakes and computers are…not.

That’s why Intel is looking towards the future to avoid missing out on a potential new revenue stream. By working with Israeli self-driving technology company Mobileye ($MBLY), Intel will become one of the biggest providers of processors for self-driving vehicles  in the future.

Yet instead of simply working with Mobileye, as they’ve been doing for a couple of years, Intel had a better idea: buying the company for billions.

Intel is set to buy Moibleye for $15.4 billion.

This will let Intel not only become a processor company, but a self-driving technology company. By owning a self-driving technology company, the company can supply all the devices, software and, yes, processors to companies making self-driving cars. Once self-driving cars are everywhere, Intel stands to make a whole lot more than $15.4 billion by selling Mobileye’s product. They also won’t have to worry as much about declining sales of computer processors if they’re selling them for other purposes.

Mobileye is already a household name in the self-driving car space.

Mobileye has outstanding agreements with BMW, General Motors, and Volvo to utilize their technology for their future self-driving car models. Tesla previously used Mobileye in their vehicles until recently. They’re not the only company in the self-driving space, but they’re certainly one of the biggest.

Mobileye investors are pretty excited about the acquisition.

Mobileye’s stock increased by over 30% during pre-market trading hours this morning after the acquisition was announced. Since Intel announced they would buy the company’s shares at $63.54 a share and shares closed at $47.27 on Friday, the company would be paying 34% more than shares were previously worth. Investors and traders quickly bought the stock in hopes that they could grab it at a bargain before it was sold and valued at a higher price.

Intel investors are less enthused.

While the company is diversifying their product offerings and making a major play for the self-driving car space, they’re also spending billions of dollars to do so. Such an extravagant spend for a company will impact their bottom line in a major way, especially since the benefits of buying Mobileye won’t be seen for several years. Intel might be in for a few tough quarters after spending $15.3 billion, something investors are well aware of and not really looking forward to.

Should you invest in Intel or Mobileye? Personally, I’m kicking myself right now for not investing in Mobileye earlier. If I bought 20 shares at the end of Friday for $945.40, that investment would be worth $1229.02 right now, gaining $283.62 in a short amount of time. When the acquisition goes through, that investment would be worth around $1270.62.

If you invest in Mobileye right now, you’re going to need to buy it for under $63.54 if you want to make any money on your deal whatsoever. You’re also not guaranteed any gains, either, as the deal has to go through regulators first. It likely will, though the approval and acquisition process won’t be immediate.

Investing in Intel now is a play for the future of self-driving cars. The company isn’t making a whole lot of money in the mobile space and computer sales are declining, but their investment in self-driving cars will certainly make them one of the biggest providers in the space, if/when self-driving cars become the norm. Plus, the company hasn’t done too poorly in the last year, as their stock increased by 13.07%. If you want to invest in the company, be sure to do your research first. Otherwise, you might not know what you’re getting into.