Graphics specialist NVIDIA (NASDAQ:NVDA) is one of the names that probably comes to mind when the phrase "self-driving car stock" is uttered -- at least it is for me. The company has spent a great deal of time and energy promoting its efforts in this space, talking up both its hardware and software innovations as well as its broad set of engagements with major car manufacturers.

And yet, despite all of the hype and excitement around NVIDIA's self-driving car efforts, the reality is that NVIDIA's automotive business -- at least if you look at the company's financial results -- doesn't seem all that exciting.

NVIDIA's DRIVE self-driving car platform is on display with four monitors showing different views of the road.

Image source: NVIDIA.

Last quarter, NVIDIA reported that its automotive business generated just $145 million in sales -- a figure that was up a relatively anemic 4% year over year. Not only was it NVIDIA's slowest growing business segment, it's also NVIDIA's smallest.

To put things in perspective, last quarter NVIDIA raked in about $3.2 billion in revenue -- automotive revenues represented just 4.5% of its total sales. That's so low that I'd be tempted to call it immaterial. Yet, if the financial performance of NVIDIA's automotive business is so underwhelming, why are many investors excited about this segment?

It's about the future

Today, NVIDIA's automotive business consists primarily of selling in-vehicle infotainment platforms to automotive makers. These platforms aren't terribly differentiated (there are many companies out there that build competent in-vehicle infotainment platforms), nor are they particularly high value, either -- so, gross profit margins are likely lower than NVIDIA's corporate average. 

There's just not a lot of money to be made from the in-vehicle infotainment chip market -- at least not the kind of money that could support a significant portion of NVIDIA's roughly $160 billion market capitalization. However, there's a lot of excitement around the kind of computing power that may one day be found in the typical car as well as NVIDIA's strategy for going about capturing that share. 

NVIDIA's strategy

According to what NVIDIA said during its most recent financial analyst day, the company expects that, over the long term, "every vehicle will be autonomous." Translating that into a financial opportunity, NVIDIA thinks that by the year 2035, the total addressable market ahead of the company will reach $60 billion. 

If we assume that NVIDIA's prediction that the opportunity here will eventually hit $60 billion, it's worth taking a look at what steps NVIDIA is taking to go after this market. The company's strategy isn't just about providing hardware or just providing software for these future autonomous cars -- it's aiming to provide automobile makers with complete end-to-end solutions.

These solutions will include future Tegra processors that power the computing systems that NVIDIA will offer to automotive makers. NVIDIA also handles a lot of the artificial intelligence processing that, according to the company, collects data, trains artificial intelligence models based on that data, runs simulations based on those models, and then handles the driving of the cars in the real world.

NVIDIA says that it has more than 370 partners working with it on these self-driving car technologies, including car makers, truck makers, automotive component suppliers, mapping specialists, sensor providers, and even academic research institutions. The company is clearly serious about its long-term investment in self-driving car technologies and, based on the excitement around NVIDIA's efforts here and the high multiple that the stock commands, investors seem to be serious about them, too. 

Investment takeaway

If you're interested in NVIDIA stock because you like the automotive story, just keep in mind that while the opportunity presented does look quite large, it'll be a while before it is fully realized -- if it's realized at all. 

Ultimately, NVIDIA' is still driven by its core gaming and data center processor businesses, with both its professional visualization and automotive efforts coming off like nice side segments by comparison. Over the long term, though, if NVIDIA's vision that all cars will be self-driving cars, and if NVIDIA can capture its fair share of that opportunity, then NVIDIA's automotive business could prove to be a source of robust growth and actually matter to the company's financial performance.