Nvidia (NVDA 2.38%) stock has been down in the dumps thus far in 2022; shares of the graphics-card specialist are off by nearly 18% thanks to the broader sell-off in the tech sector.
But investors looking to buy hot growth stocks should consider capitalizing on Nvidia's price drop as there are several reasons to expect that its business will sustain what has actually been terrific growth. One of those reasons involves the automotive market, where Nvidia sees a major revenue opportunity that could supercharge its growth over the long term.
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Nvidia's automotive opportunity
Right now, gaming is Nvidia's largest source of revenue. The segment accounted for $12.5 billion in sales -- or 46% of the company's top line -- in its fiscal 2022, which ended Jan. 30. And management sees a $100 billion revenue opportunity in the video-gaming segment.
Yet, the opportunity Nvidia sees in the automotive segment is much larger: $300 billion. The automotive segment generated $566 million in revenue in fiscal 2022 -- just over 2% of the company's top line. Additionally, the automotive business grew just 6% last year, which pales in comparison to the 61% revenue growth recorded by Nvidia's gaming business in fiscal 2022.
However, investors shouldn't forget that gaming is a mature market for Nvidia. The company has been selling graphics cards for use in high-end personal computers and gaming consoles for more than 20 years now. It has established a tight grip over this market, controlling an 80%-plus share at the end of 2021. Meanwhile, Nvidia's automotive business has yet to achieve critical mass.
That said, it won't be surprising if automotive revenue eclipses the company's gaming revenue in the future. Analysts at Research and Markets forecast that the global autonomous vehicle market will generate $327 billion in revenue by 2030, clocking annualized growth of 22.6% through the forecast period.
That's faster and bigger than the gaming GPU (graphics processing unit) market, which is expected to clock annual growth of 14% through 2026, according to Mordor Intelligence. Jon Peddie Research points out that $51.8 billion worth of gaming cards were sold in 2021. Applying a 14% compound annual growth rate to that number for the next nine years would bring the size of the gaming GPU market to $167 billion by 2030.
The good part is that the company is pulling the right levers to take full advantage of its opportunities in the automotive market.
Next step: the automotive market
Nvidia's automotive business could soon start moving the needle in a bigger way for the company. That's because it has already built an $11 billion design win pipeline in the automotive segment, which it expects to convert into revenue over the next six years. For comparison, Nvidia's automotive business generated just under $3.5 billion in revenue over the past six fiscal years.
So Nvidia's automotive revenue could more than triple in the next six years as compared to the last six, assuming it converts all of its design wins into actual sales. But more importantly, Nvidia has built a solid base of partners in the automotive industry that could help it grow its design win pipeline further and record stronger growth.
Hyundai, Mercedes, Tata Motors' Jaguar and Land Rover, Volvo, Navistar, and BYD are among the many companies partnering with Nvidia for its full-stack autonomous driving platform. What's more, 20 out of 30 electric vehicle companies, seven out of 10 trucking companies, eight out of 10 robotaxi companies, and all 30 autonomous vehicle data center providers are building their solutions using Nvidia's Drive platform.
Nvidia's end-to-end solutions for the automotive market explain why it has already landed such an impressive array of partners.
For instance, the company has launched a mapping platform for developers of autonomous cars that will provide them with high-definition maps of major highways spanning more than 500,000 kilometers of roadway in North America, Europe, and Asia. It also has Drive Hyperion, a modular and scalable platform that consists of sensors and an artificial intelligence computing platform for the development of Level 2 and Level 3 autonomous driving solutions.
Nvidia's comprehensive suite of hardware and software solutions for the automotive market puts it in a solid position to benefit from the rise of connected and autonomous cars. Wells Fargo analyst Aaron Rakers predicts that Nvidia could capture half of the connected subscription services and software functionality within the automotive space.
As the company is still just scratching the surface of all these terrific opportunities, investors should not be surprised if the automotive market gives this tech giant a major boost in the long run.
