Though NVIDIA (NVDA 1.32%) has been flying high and delivering rapid revenue and earnings growth over the past few quarters, the graphics processor specialist's automotive business has thus far been failing to click.
For its fiscal 2021, which ended Jan. 31, the chipmaker booked automotive revenue of just $536 million, which amounted to just over 3% of its top line. What investors might find more alarming is that NVIDIA's automotive revenue dropped by 23% in fiscal 2021. It was the company's worst-performing business segment. Contrast those results with its highly successful data center business, which more than doubled its revenue during the year and accounted for 40% of the company's top line.
But don't be surprised to see NVIDIA's automotive business pick up the pace in the coming quarters. It could even emulate the astounding growth of the data center segment, which accounted for only 12% of NVIDIA's total revenue four years ago but has grown by leaps and bounds thanks to a huge end-market opportunity.
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NVIDIA claims to be sitting on a massive automotive opportunity
NVIDIA says that it has a pipeline of automotive design wins worth more than $8 billion spread over the next six years. The company has partnered with several players across different automotive verticals, including established manufacturers such as Mercedes-Benz, Audi, Hyundai, and Volvo.
Additionally, truck-making giants such as Navistar and new electric vehicle providers such as Nio and Faraday Future have also struck partnerships with the chipmaker. And it has inked deals with robotaxi providers such as Cruise and DiDi. These companies have signed up to use NVIDIA's DRIVE AGX platform, the capabilities of which have increased markedly over the years.
NVIDIA's DRIVE AGX Orin platform, which is expected to go on sale next year, is a huge improvement over the current Xavier system-on-a-chip (SoC). NVIDIA claims Orin's performance is eight times better than its predecessor system, as it can process 254 trillion operations per second as compared to Xavier's 30 trillion.
The Orin architecture is designed to support autonomy systems from Level 2 vehicles (partial automation/advanced driver assistance systems) to Level 5 vehicles (full autonomy). This allows NVIDIA's customers to utilize a single scalable architecture upon which they can develop multiple systems. NVIDIA plans to push the envelope further in the coming years with its recently revealed DRIVE Atlan autonomous vehicle platform, which is expected to deliver four times the performance of Orin. NVIDIA says that Atlan could make its way into production model vehicles in 2025.
The potential financial impact
Given the number of companies collaborating with NVIDIA to use the Orin platform, which is expected to be used in production vehicles beginning in 2022, investors can expect its automotive business to start gaining traction next year. The arrival of Atlan three years later should provide sustained momentum.
Now, as was previously mentioned, NVIDIA says it has an automotive design win pipeline exceeding $8 billion through fiscal 2027. The automotive business has produced $3.2 billion in revenue for NVIDIA over the past six fiscal years, so NVIDIA seems poised for a big jump in automotive revenue in the coming years, assuming it converts all of that pipeline into actual sales.
NVIDIA is deploying a shared revenue model for its autonomous driving platform. For instance, its partnership with Mercedes-Benz -- which will be deploying NVIDIA's systems across its entire fleet beginning in 2024 -- is based on a 50-50 revenue share model that will help both companies generate recurring revenue by way of software upgrades and additional feature upgrades that customers buy or subscribe to. This model could pave the way for stable long-term revenue growth in the automotive business for NVIDIA.
The chipmaker forecasts an overall market opportunity for 100 million vehicles per year wherein it could deploy its self-driving platform. Of course, NVIDIA isn't the only one looking to take a chunk out of this market. Chip giant Intel has been making some notable moves in this market, and its Mobileye autonomous driving subsidiary boasts of partnerships with more than 25 automakers.
NVIDIA, however, boasts of having over 370 partners for its DRIVE autonomous driving platform, including carmakers, truck makers, component suppliers, software companies, and research institutions. It remains to be seen who wins this battle, but there seems to be enough opportunity for both companies to generate substantial revenue out of this market.
All of this suggests that investors shouldn't ignore the potential for rapid growth in NVIDIA's automotive business. The segment may have been a severe laggard of late, but it could complement the terrific growth the company is witnessing in the gaming and the data center businesses that together account for 88% of the total revenue.
NVIDIA dominates the gaming GPU market that's currently blowing up as consumers are upgrading to its latest GPUs, while data center prospects recently received a big shot in the arm after the launch of a new chip platform. Throw in the catalysts that the automotive business is sitting on, and it won't be surprising to see NVIDIA remain a top tech stock for years to come.
