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Will This Little-Known Nvidia Business Be the Chipmaker's Next Giant Growth Opportunity?
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Although Nvidia (NASDAQ:NVDA) has its fingers in a lot of pies, its dominance of artificial intelligence has sucked all the oxygen out of the room. And rightly so.
Data centers, which houses Nvidia’s AI business, generated $2.9 billion in annual revenue five years ago, recorded nearly $31 billion in sales in just the third quarter. The AI chipmaker expects to notch $112 billion in sales for the full fiscal year this year. That equates to a mind-blowing 106% compound annual growth rate (CAGR) for the business.
24/7 Wall St. Key Points:
- Nvidia (NVDA) dominates artificial intelligence today, but it is not the only business the chipmaker dabbles in.
- The automotive market is a small, but fast-growing segment that could be an important part of Nvidia’s future, even if it doesn’t reach the same heights as AI.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
There is little reason to expect Nvidia’s growth to appreciably slow in the immediate future. CEO Jensen Huang has called demand for its latest Blackwell chip that will be released early next year “staggering.”
Yet AI isn’t Nvidia’s only business. Gaming, for example, remains a core, foundation channel for its graphics processing units (GPUs) producing $3.3 billion in quarterly sales, or half the total revenue the segment produced for all of 2019.
There is one segment, though, that has been more sluggish than the others and it could be a major source of growth in the future: automotive. While it might not attain the heights that gaming did, let alone AI accelerators, it could become a valuable component of Nvidia’s overall business.
An industry ripe for innovation
Bloomberg reported recently the chipmaker is beginning to invest heavily in the automotive market, especially in China. It reported hiring in the space has jumped by 33% in the past year, and it will start 2025 with 4,000 employees working in the Chinese automotive market.
Nvidia added 200 employees in Beijing to focus on self-driving vehicles while also expanding its after-sales service and networking software development teams.
The automotive segment is beginning to take off. Revenue jumped 72% year-over-year to $449 million, which was also a 30% increase over second-quarter sales. For the full fiscal year last year, automotive revenue jumped 21% to $1.1 billion, the first time it crossed over the billion-dollar threshold.
Nvidia is working with auto manufacturers and Tier 1 parts suppliers to further develop its autonomous and electric vehicle platforms. It has been a major chip supplier to Tesla (NASDAQ:TSLA) and recently expanded its collaboration with Volvo (OTC:VLVLY) for the fully-electric EX90, which was built on Nvidia’s DRIVE Thor platform that integrates the Blackwell GPU architecture.
Nor is Nvidia waiting for the industry to catch up. In May, it participated in a $1 billion funding round for UK-based self-driving tech startup Wayve. That’s important because other automakers, like General Motors, (NYSE:GM) are pulling back on self-driving vehicles. GM announced it was shuttering its Cruise robotaxi business and folding the division into its main operations.
Self-driving auto opportunity
Nvidia estimates that the autonomous machine market, which includes automotive applications, represents a $300 billion opportunity over the long term.
According to S&P Global Mobility, the semiconductor value per car is expected to surge from $500 per vehicle in 2020 to $1,400 per vehicle by 2028. The increase suggests that as vehicles become more technologically advanced, demand for Nvidia’s products will likely rise.
Because of Nvidia’s strong position in AI, this increase is steering its automotive business back into growth mode. The company’s advances in AI technology are increasingly being integrated into automotive applications, enhancing their offerings and driving even greater demand.
Key takeaways
Without question, the autonomous vehicle market is filled with potholes. Beyond the demise of GM’s self-driving initiative, Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Waymo has faced significant challenges and scrutiny from regulators. Just this past May, the National Highway Traffic Safety Administration opened a preliminary investigation into Waymo’s robotaxi fleet after receiving 22 reports of incidents.
Which explains why Nvidia is investing heavily in China. Despite some regulatory scrutiny of its own by Beijing over monopolistic practices related to the acquisition of Mellanox several years ago, China is testing more autonomous vehicles than any other country. It could be the proving ground for the technology Nvidia exports back to the U.S.
The automotive market represents just 1% of Nvidia’s total revenue. Yet as its other segments mature, self-driving vehicles could be a good, long-term bet on their becoming a much larger, faster growing part of the chipmaker’s business.
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