How to invest behind the car of the future, according to Bank of America

Published Wed, Jun 8 202210:54 AM EDTUpdated Wed, Jun 8 202211:32 AM EDT

Driverless vehicles and high-tech automobiles are on the horizon. Investors looking to capitalize on the burgeoning trend should consider putting their money in companies playing an integral role in the evolving market, according to Bank of America . The bank on Wednesday identified a host of suppliers and semiconductor makers that stand to benefit from shifts in the automobile industry as part of an annual report highlighting the composition of cars and a list of investment ideas. "[A]s the global market has matured and competition among suppliers has become increasingly fierce, we find that the more successful suppliers are still those with proprietary and value-add technology for their customers, but also those that have significant global scale to leverage cost and investment, as well as geographic and customer diversity to manage through volatility across any one region or at any one automaker," analyst John Murphy wrote in the report. Bank of America highlighted a number of emerging industry trends. They include increased outsourcing from original equipment manufacturers to suppliers and new entrants in an attempt to fund high-tech additions to cars. Automobile manufacturers and suppliers have come under pressure in recent months as they grapple with chip shortages, rising material costs and supply chain disruptions made worse by the conflict in Ukraine. Both used- and new-car prices have surged in the past year as the market grapples with a mismatch between supply and demand. A recent report from research firm E Source found that costs to produce electric vehicles could rise 22% by 2026 as a raw material shortage persists. As costs rise and the market evolves, here are some of Bank of America's top picks for investors looking to play the sector: Semiconductor giant Nvidia stands to benefit from the move toward electrification and autonomous cars. Its shares have tumbled nearly 36% this year, but could rally 43% based on Tuesday's closing price and Bank of America's price target. Nvidia also remains a growth leader thanks to its strong ties to artificial intelligence. "In our view, demand for automotive semiconductors is only going to increase from here, as the broader industry continues to recover from the COVID-induced trough in 2020-2022 and the broader secular trends for increased vehicle electrification, autonomy and connectivity continue to gain momentum," Murphy said. Bank of America also named NXP Semiconductors and ON Semiconductors among those poised to benefit from automotive evolution, even as shares have dipped about 20% and 4%, respectively, this year. Suppliers such as Aptiv also stand to profit. The company is one of the best-positioned suppliers given its exposure to autonomous technology and the electric vehicle market, Murphy said. The bank also likes its recent joint self-driving car venture with Hyundai . "This product exposure should continue to drive outsized revenue growth versus peers; and specifically, we would note that its growth above market has been tracking in the double-digits range more recently, among industry best," Murphy wrote. — CNBC's Michael Bloom contributed reporting