Qualcomm (NASDAQ:QCOM), the top mobile chipmaker in the world, generates most of its revenue from the smartphone market. But it's also been diversifying into new markets, and connected cars are a top priority.

Qualcomm's Snapdragon Automotive modems link cars to 4G and 5G networks, and its Snapdragon Automotive Platforms bundle those modems with a CPU, Bluetooth, Wi-Fi, USB, GPS, and audio connections to support infotainment and navigation systems.

Qualcomm's Snapdragon Ride platform is a new advanced driver-assistance system (ADAS), which enables autonomous driving. Its Snapdragon Digital Cockpit platform controls digital dashboard displays and rear-seat entertainment systems, and its new Cloud-to-Car platform links those systems to 4G/5G networks for over-the-air updates.

All these products indicate that Qualcomm wants a piece of the growing driverless vehicle market. But can it catch up to NVIDIA (NASDAQ:NVDA), which has a head start in the nascent industry?

A young woman sits in a driverless car.

Image source: Getty Images.

Why does NVIDIA have a head start?

NVIDIA's Tegra chips originally competed against Qualcomm's Snapdragon chips in the smartphone market, but Qualcomm eventually conquered the market.

NVIDIA abandoned smartphones, but it didn't abandon Tegra. It pivoted the ARM-based chipset toward high-end automakers instead, which convinced Audi, its subsidiary Lamborghini, and Tesla Motors to install Tegra-powered infotainment and navigation systems in select vehicles in 2012.

That foothold led to NVIDIA's launch of Drive, a computer platform for autonomous cars, in 2015. It unveiled the third generation of the platform, Drive PX Pegasus, for Level 5 (fully autonomous) vehicles in 2017. NVIDIA also relies on the strength of its GPUs, which process AI tasks faster than stand-alone CPUs, to power those platforms.

Today, a growing list of companies -- including Ford, Toyota, Daimer's Mercedes-Benz, and Baidu -- have partnered with NVIDIA across various self-driving projects. NVIDIA's automotive revenue accounted for 5% of its top line last quarter.

Can Qualcomm catch up to NVIDIA?

Qualcomm launched its first line of Snapdragon Automotive chipsets in early 2016. It tried to buy NXP Semiconductors, the world's largest automotive chipmaker, later that year, but the deal ultimately collapsed two years later.

A driverless car scans the road ahead.

Image source: Getty Images.

Nonetheless, Qualcomm remained invested in the market with new chipsets and automotive platforms. Qualcomm's baseband modem business, the largest in the world, also gave it a valuable edge against NVIDIA, since it could bundle its modems with its CPUs in single system on chips (SoCs) to offer constant cellular connectivity. Automakers who used NVIDIA's Tegra CPUs needed to purchase separate baseband modems.

In other words, Qualcomm could employ the same strategies it used in smartphones to challenge NVIDIA in the automotive market. Qualcomm's list of automotive partners is also growing and includes NVIDIA partners like Ford and Audi. Ford and Audi seem particularly interested in Qualcomm's cellular vehicle-to-everything (C-V2X) technology, which keeps cars constantly connected to wireless networks.

Qualcomm hasn't formally launched a Level 5 autonomous platform like NVIDIA yet. However, it claims that Snapdragon Ride, which offers Level 2+ (semi-autonomous) driving at lower power levels, can scale up to Level 4 and 5 at higher power levels.

Should NVIDIA be worried?

NVIDIA's automotive revenue dipped 6% annually last quarter. During the conference call, CFO Colette Kress blamed the decline on the "roll-off" of legacy infotainment revenue and "general industry weakness," but noted that the company's AI cockpit business -- which is similar to Qualcomm's cockpit platform -- grew as Daimler deployed more AI-based infotainment systems into its Mercedes-Benz vehicles.

Kress also declared that NVIDIA's Drive remained "the industry's leading end-to-end platform that enables customers to develop, test, and safely operate autonomous vehicles ranging from cars and trucks to shuttles and robotaxis."

Kress noted that about half of NVIDIA's automotive revenue still comes from older stand-alone infotainment systems, and that those systems were being gradually replaced by new cockpit bundles. That ongoing shift, not competition from Qualcomm or other challengers, seems to be the main headwind for its automotive business.

The road ahead

The driverless market is still small, so there could be plenty of room for Qualcomm, NVIDIA, and other players to grow without trampling each other. Qualcomm's baseband modems give its platforms built-in cellular connectivity, but NVIDIA's Drive platforms process their surroundings with powerful high-end GPUs.

Therefore, Qualcomm and NVIDIA may be launching overlapping platforms in the hopes of dominating driverless cars with end-to-end solutions, but automakers might prefer using combinations of technologies from both chipmakers, along with other companies.

In short, Qualcomm won't overtake NVIDIA in driverless cars any time soon, but it doesn't need to. It just needs to keep pace with new chips and platforms, which could eventually diversify its core business away from mobile devices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.