When thinking about how artificial intelligence (AI) is taking the world by storm, my mind almost instantly begins to think about how the technology is impacting fields like data analytics or drug discovery.
While these use cases tend to fetch the most attention, AI has quietly been playing a major role in the automotive industry as well. From voice-recognition assistants to the rise of autonomous driving, AI is paving the way for the future of transportation.
Let's explore how Nvidia (NVDA +0.72%) is involved with the automotive sector, and assess why I see the company as my top pick over Tesla at the intersection of AI and cars.
NASDAQ: NVDA
Key Data Points
How is Nvidia involved with the automotive industry?
Nvidia offers a number of products and services marketed toward the automotive industry. For example, the company's Omniverse platform allows companies to build digital twins of real-world environments to simulate how vehicles may operate under certain conditions (i.e., weather, traffic, pedestrians walking in the road).
In addition, the Nvidia Halos system combines the make and model of a car with the appropriate hardware and software development needed in order to bring autonomous capabilities from prototype to functioning product.
Nvidia's primary role in the automotive sector is to help bring a technology-driven layer to the car manufacturing process -- ushering in a new wave of safety and cost efficiencies.
Image source: Getty Images.
Keep an eye on Nvidia's automotive growth
According to the company's website, Nvidia is lending its AI services to a number of top automotive businesses including Rivian, Toyota, BYD, Mercedes-Benz, and Hyundai. While this is impressive, I think Nvidia's most notable move in the car business took place earlier this month during the company's GTC conference.
At the conference, Nvidia revealed that it partnered with General Motors to work on a number of AI-powered solutions for its cars. As part of the deal, GM will be using the Nvidia Omniverse, Cosmos, and DRIVE AGX platforms to build more advanced systems for drivers, as well as improve manufacturing efficiencies in GM's factories.
The table below breaks down Nvidia's revenue from its automotive segment during calendar year 2024:
| Category | Q1 | Q2 | Q3 | Q4 | 2024 |
|---|---|---|---|---|---|
| Automotive revenue | $329 million | $346 million | $449 million | $570 million | $1.7 billion |
Data source: Nvidia.
Revenue from Nvidia's automotive segment increased by 55% year over year in 2024. With that said, the $1.7 billion in revenue from this business only represents about 1% of Nvidia's total revenue last year.
During the company's fiscal fourth-quarter earnings call, management guided for the automotive business to rise nearly threefold this year to $5 billion in revenue.
Right now, the automotive segment is Nvidia's fastest-growing business outside of data centers. And yet even when accounting for this rapid scale, the automotive sales are barely even a fraction of Nvidia's entire operation.
I see the new partnership with GM as a sign that more car businesses, especially legacy automakers that may have fallen behind in other catalysts fueling the automotive industry such as electric vehicles (EV), are looking for ways to level up and bring a new wave of growth supported by rising interest in AI.
Why I see Nvidia as the biggest beneficiary for AI-powered cars
When it comes to AI and cars, I can't think of two other companies besides Nvidia and Tesla that have the most potential upside.
While Tesla has made notable progress in its autonomous driving ambitions, there's a pretty solid argument to be made that the company's future hinges on widespread adoption of its self-driving car software. Without AI, an investor could argue that Tesla is simply another car manufacturer and less so a technology business. The automotive industry is highly competitive and many companies are forced to compete on price in order to spur demand and sales. In the long run, a strategy like that can diminish profit margins and stifle innovation.
On the other hand, I see Nvidia as more of an insulated opportunity when it comes to AI and cars. Should more vehicles come equipped with AI-powered services, I think Nvidia has an obvious opportunity to parlay its existing partnerships with car manufacturers to expand its overall presence in the automotive sector.
In other words, a long-term investment in Tesla may require strong conviction that the company pulls off its autonomous driving vision. By contrast, Nvidia doesn't necessarily need Tesla in order to succeed -- as the company has the luxury of partnering with a host of car businesses around the world that are looking to build their AI roadmaps.
For these reasons, I see Nvidia as the bigger beneficiary of autonomous driving and AI-powered services in the car industry relative to the competition.
