Long gone are the days when Nvidia (NVDA +2.59%) was known as a video game stock. These days, Nvidia is the dominant force in artificial intelligence (AI) thanks to its work on data center semiconductors used to power ChatGPT and a growing number of other generative AI services.
But there's much more to Nvidia than its data center segment. Its automotive chips are picking up steam too as AI only just begins to reshape the vehicle of the 21st century. And as the layers are peeled back, it's becoming increasingly apparent that Nvidia's chief rivals may not be other semiconductor companies, nor a cloud-computing giant like Amazon's Amazon Web Services (AWS) or Alphabet's Google Cloud trying to design AI chips as well. A select few investors have known for some time that Nvidia has been locked in a two-horse race with none other than Tesla (TSLA +0.91%).
NASDAQ: NVDA
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Nvidia's unique angle on AI for autos
Nvidia has its roots in the video game industry, having pioneered the graphics processing unit (GPU) to accelerate the computing-intensive task of high-end graphics. For the last decade-and-a-half or so, the company has been working on applications for these chips for data centers. The fruit of that labor is embodied in the current flood of generative AI apps like ChatGPT that have come to market in the last year.
And it's from this angle that Nvidia has approached the automotive industry. Automakers around the globe have started adding advanced driver-assist systems (ADAS) to vehicles on their way to full self-driving capabilities. Long before that sort of AI takes shape, though, a company needs to use data centers to train the hundreds of AI algorithms needed to make a car "intelligent." Contrary to common belief, these AI services for the auto industry are actually reported under Nvidia's data center segment. The automotive revenue segment only pertains to chips that actually get installed in vehicles themselves.
Chart source: Nvidia. Segment highlights added by author.
The takeaway? Nvidia is booming right now thanks to data-center hardware and services for generative AI and the automotive industry, but the company is only just beginning to tap into the massive potential the modern car itself offers. In the last reported quarter, auto revenue increased 114% year over year to $296 million and is showing no signs of slowing.
Tesla views Nvidia as a chief competitor
The more one studies up on Nvidia, the more apparent it becomes that the chip designer has been behind the scenes powering all number of today's bleeding-edge tech companies. It thus comes as no surprise that lots of peers, like the cloud giants Amazon, Google, and even Microsoft, would like to design their own chips to reduce their reliance on Nvidia. To date, in-house chip-design results have been mixed at best.
None have been nearly as successful as Tesla has been, though.
Back in 2016, Tesla hired a number of semiconductor industry veterans to design its own self-driving car chips. A few years later, it announced it would no longer need to purchase such hardware from Nvidia for its vehicles.
NASDAQ: TSLA
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But Tesla wasn't able to fully divorce Nvidia. Tesla still had to train its ADAS AI algorithms and thus still relied on Nvidia's data-center hardware. Now that's changing too. Elon Musk has said that Tesla's new data center, "Dojo," will utilize Tesla-designed AI training hardware. Musk has also said in the past that Dojo could one day be offered to train other automakers' and self-driving car start-ups' AI algorithms.
A surprising thing most investors miss about Nvidia
Nvidia has a lot of competition gunning for it, even more so now that it has established itself as a dominant force in generative AI services like ChatGPT but also in the development of self-driving cars. But none of that competition has been nearly as successful as Tesla has been, both in its efforts at developing its own chips for cars and more recently for data centers too.
Could a type of AI hardware duopoly of sorts be forming between Nvidia and Tesla, with others (like Adavanced Micro Devices) in a distant third place? Perhaps it's too early to say, but at this juncture it certainly looks like Nvidia's most formidable foe in the AI industry is the electric vehicle pioneer.
The good news is that AI is an incredibly wide-ranging term and a fast-growing space. Nvidia isn't going to run out of room to grow quickly. Its upward-inflecting automotive segment proves there is a lot more to this company's AI dreams than data centers.
