Right now, one of the hottest trends in the semiconductor industry is the emerging market for autonomous vehicles. It is generally accepted that to do proper autonomous vehicles, a lot of computing power is going to be needed inside of the cars to give them the required "intelligence."
Two companies that have made public their intentions to aggressively pursue the market for the "brains" inside of self-driving cars are microprocessor giant Intel (NASDAQ:INTC) and graphics specialist NVIDIA (NASDAQ:NVDA).
Both companies have announced major partnerships and deals with automotive makers and suppliers. Intel, for instance, announced last year that it would be collaborating with Mobileye (NASDAQOTH:MBBYF) and Delphi Automotive to build platforms for use by automotive manufacturers.
Intel has also said that, in 2016, it booked self-driving car deals collectively worth more than $1 billion in lifetime revenue.
Last year, NVIDIA and Audi announced that they would, together, try to bring self-driving cars to market by 2020. NVIDIA's components are also found inside of Tesla Motors' (NASDAQ:TSLA) new vehicles, as well.
So, both NVIDIA and Intel both look well-positioned to capitalize on a potential self-driving car boom. Which stock is the better way to play it?
These are adjacent businesses for both
It's important to understand that self-driving car platforms aren't either of these companies' core revenue drivers today -- they're adjacent businesses. Intel's core business is microprocessors and related components for personal computers and data centers, and NVIDIA's core businesses are graphics processors designed for gaming, workstations, and data centers.
For Intel, autonomous vehicles are just one (potentially significant) part of the company's Internet of Things business (though the company did recently announce that it'd be forming an autonomous driving group within its Internet of Things group). NVIDIA specifically calls out automotive as a key long-term growth segment.
The reason that both companies look well-positioned to play in the self-driving car market is because the technology that they've developed for other markets (high-performance computing technologies) look to be applicable to self-driving cars. However, there is additional technical and sales/marketing work required to succeed in self-driving cars, and both companies appear to be making the required incremental investments to capitalize on these opportunities.
Automotive could be a bigger deal for NVIDIA than for Intel
Here's the thing: Both NVIDIA and Intel have an opportunity to make some real money from the self-driving market. Furthermore, the market for significant computing capabilities inside of self-driving cars could be quite substantial, especially if many (if not most) cars over the long term are endowed with such computing capabilities.
However, I think that the self-driving car market could be much more interesting for NVIDIA than for Intel by Intel's sheer size relative to NVIDIA.
If Intel manages to grow its Internet of Things business from about $3 billion in annual revenue to $5 billion in annual revenue, then that'd certainly be nice, but not a game changer for Intel, which is expected to have generated more than $58 billion in revenue during 2016.
However, if NVIDIA -- which has generated about $6.1 billion in revenue over the last 12 months -- generates an incremental $2 billion in automotive-related revenue from self-driving cars over time, then that's not only going to significantly boost the company's top line, but its bottom line as well.
Answering the titular question
Although I wouldn't recommend buying either Intel or NVIDIA solely based on the potential for self-driving cars (these are complex businesses that generate most of their revenue from outside of the automotive market to begin with), NVIDIA's business does appear to be more likely to benefit from growth in self-driving cars than Intel's because it's a smaller one to begin with.