Please ensure Javascript is enabled for purposes of website accessibility

Meet Nvidia's Next Big Catalyst

By Harsh Chauhan – Sep 9, 2021 at 6:03AM

Key Points

  • Nvidia's automotive business recorded impressive growth last quarter.
  • A slate of new design wins and a robust pipeline of existing deals can help the automotive business deliver consistent growth.
  • The adoption of autonomous vehicles over the long run should create a secular growth opportunity for Nvidia.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The graphics specialist is gaining momentum in a market that could drive impressive long-term growth.

The automotive business has been an underperformer for Nvidia (NVDA -1.58%) despite the massive hype that has surrounded the segment over the years. The graphics specialist was once heralded as a top play on the autonomous vehicle industry as it was an early mover in this space, supplying chips to Tesla and other major automakers a few years ago.

However, Nvidia's automotive growth lost momentum once it became evident that autonomous vehicles were still some time away, and other technology companies were leaving no stone unturned to attack this potentially lucrative market. The good news is that Nvidia's automotive prospects appear to be back on track now.

Driver sitting in car with hands off the steering wheel.

Image source: Getty Images.

Nvidia's automotive revenue jumps sharply

Nvidia's automotive business generated $152 million in revenue in the second quarter of fiscal 2022. While that was just over 2% of Nvidia's total quarterly revenue of $6.5 billion, it is worth noting that the company's automotive revenue shot up 37% year over year as the adoption of its DRIVE platform picked up the pace.

Nvidia reported several automotive design wins during the quarter. The company's DRIVE platform was selected by self-driving start-up AutoX to power its fifth-generation robotaxi platform that's capable of delivering Level 4 autonomy. This win could be a big deal for Nvidia as AutoX launched a commercial robotaxi operation in Shenzen, China, earlier this year.

Shenzen has a population of more than 12 million people and the city's traffic is among the heaviest in the world. Nvidia and AutoX have an opportunity to showcase that they can successfully deploy driverless cars in complex, real-world traffic conditions.

Success in such a city can open the gates for Nvidia to deploy its technology in more locations across the globe. Additionally, AutoX is partnering with the likes of Stellantis and Honda to develop automotive technologies, which could pave the way for Nvidia to deploy its automotive technology at scale in the future.

Another notable automotive design win for Nvidia last quarter arrived in the form of Embark, an autonomous trucking start-up. The start-up has selected Nvidia DRIVE to develop a universal interface that will provide autonomous driving systems to four major truck makers: Volvo, Paccar, International, and Freightliner. The Nvidia-based platform will allow these truck makers to deploy their systems across the entire fleet, and give them the flexibility to choose among autonomous driving levels from 2 to 5.

Thanks to such design wins, it isn't surprising to see why Nvidia is upbeat about the future of its automotive business. CFO Colette Kress pointed out on the August conference call, "Looking further out, we have substantial design wins set to ramp that we expect will drive a major inflection in revenue in the coming years."

Switching into the fast lane

Nvidia investors can expect the automotive business to switch up a few gears on the back of a robust design win pipeline that has started translating into revenue. The company pointed out at its 2021 investor day in April that it is sitting on $8 billion worth of automotive design wins that are expected to be realized through fiscal 2027. It is likely that the figure has moved north now, thanks to its latest partnerships.

The automotive business has generated $576 million in revenue over the trailing 12 months. Nvidia could witness a sharp increase in the segment's performance over the next few years as it converts its design wins into actual revenue. Moreover, Nvidia believes that the automotive business is built for long-term growth as the adoption of driverless vehicles increases, creating more demand for the company's hardware and software offerings.

Third-party estimates peg the potential growth of the autonomous vehicle market at an average annual pace of 63% through 2027, and Nvidia seems on its way to take advantage of this trend. This is another reason for investors looking to add a growth stock to their portfolios to buy Nvidia as it has another impressive catalyst in store, apart from the fast-growing video gaming and data center markets that have been the pillars of the company's terrific financial growth so far.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia, Paccar, and Tesla. The Motley Fool has a disclosure policy.

Stocks Mentioned

Nvidia Stock Quote
Nvidia
NVDA
$166.10 (-1.58%) $-2.66
Honda Motor Stock Quote
Honda Motor
HMC
$23.79 (-1.57%) $0.38
Tesla Stock Quote
Tesla
TSLA
$182.45 (-6.37%) $-12.41
Paccar Stock Quote
Paccar
PCAR
$103.36 (-2.30%) $-2.43
Stellantis  Stock Quote
Stellantis
STLA
$15.25 (-0.78%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.