When investors think of Nvidia (NVDA 1.54%), several opportunities immediately spring to mind.
The company is best known for its gaming acumen, having pioneered the high-end graphics processing units (GPUs) that render lifelike images in video games. Nvidia also adapted its graphics cards to the specialized needs of data centers, as its semiconductors help whisk information around the ether. The most obvious opportunity -- at least in recent memory -- is artificial intelligence (AI), which dominates the headlines. Nvidia AI chips are arguably the gold standard for providing the computational horsepower necessary to train and run AI models once training is complete.
Yet there's one opportunity that is largely flying under the radar that could turn out to be Nvidia's next big growth engine.
Image source: Nvidia.
Let's go for a drive
A quick look at the company's latest investor presentation reveals the opportunity that could help "drive" Nvidia's future growth -- transportation. The company has long touted a total addressable market (TAM) of over $1 trillion. Investors might be surprised to find that $300 billion of that opportunity is tied to the auto industry. Nvidia estimates that there will be in the neighborhood of 100 million vehicles per year that will require hardware for assisted driving and autonomous systems.
This includes systems provided to car and truck makers, tier-1 automotive parts suppliers, robotaxi companies, and even mobility systems for smart factories. It also encompasses autonomous vehicle (AV) software, simulation systems, sensors, and the cloud computing necessary to tie it all together.
Now, before you dismiss this idea, this technology isn't limited to mass adoption of fully self-driving systems -- level 5 systems -- which could be years or even decades away. Nvidia's Drive system provides end-to-end solutions for all manner of advanced driving and driver-assist systems.
A host of automakers introduced -- or are on the verge of introducing -- level 2 and level 3 systems that can "steer, accelerate or decelerate, and pass other cars without human input," according to Nvidia. The company goes on to say some vehicles can "maneuver around incidents or traffic jams," with input from the driver. These systems allow drivers to take their hands off the wheel or feet off the pedals.
Show me the money
Nvidia is quick to point out that its automotive segment is still in the early stages of development. During the company's fiscal 2023 (ended Jan. 29), the segment generated revenue of just $903 million, or just 3% of Nvidia's total sales. That said, this segment will likely become more important over time. Nvidia points out that while infotainment systems historically drove revenue in the segment, the future opportunity will be fueled by AV systems and its AI cockpit platform, and the full software stack. Furthermore, the company says that the "adoption of centralized car computing and software-defined vehicle architectures" will be the primary driver of future growth.
This opportunity will begin to play out in the near future. Nvidia already notched more than $14 billion in design wins, which will unfold over the coming six years. Furthermore, given the long and growing list of automotive partners and the recent acceleration in AI technology, Nvidia will not only add new partners in the coming years, but also likely expand on its existing relationships.
What this means for Nvidia investors
Knowledgeable investors will note that there's a degree of overlap between AI and Nvidia's automotive aspirations -- and they'd be right. However, much of the discussion is centered on how AI will increase productivity, largely the result of improving software and its integration with cloud computing. Nvidia has listed the automotive segment as a separate and distinct opportunity.
In fact, the global AV market topped out at roughly $147 billion in 2022 and is expected to climb to $2.3 trillion by 2030, according to estimates by Next Move Strategy Consulting.
Nvidia continues to attract a veritable who's-who of automakers, parts suppliers, and software developers to tap this large and growing opportunity. Don't be surprised if -- sometime soon -- this becomes Nvidia's next big growth driver.
