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Is NVIDIA’s Automotive Business Losing Its Wheels?

Harsh Chauhan, The Motley Fool

There has been a great deal of hype over how NVIDIA (NASDAQ: NVDA) has been one of the pioneers in the self-driving car space, developing cutting-edge technology and partnering with marquee automakers to make a dent in this nascent market. For instance, the graphics chip specialist's supercomputer already powers all of Tesla's vehicles, and it could find its way into more cars thanks to its huge ecosystem of 225 partners.

But NVIDIA's automotive relationships haven't led to any major financial gains. Last quarter, the company pulled in $144 million in revenue from its automotive business, up just 13% from the prior-year period. This is just 5.4% of its total revenue, down from the 6.3% revenue contribution in the year-ago quarter.

A closer look at the revenue trends in NVIDIA's automotive business clearly indicates that it has lost momentum in recent quarters.

NVIDIA automotive revenue growth chart

Image Source: NVIDIA


So, what's the reason behind the slowing of NVIDIA's automotive revenue gowth, and will the company be able to infuse life into it once again?

NVIDIA is playing catch up

NVIDIA's automotive lead has been slashed by Intel's (NASDAQ: INTC) aggressive moves in this space. Chipzilla has rapidly scaled up its automotive presence with a string of acquisitions and strategic partnerships, making it one of the biggest names in self-driving car technology.

In fact, Intel supplies its sensors and other components to enable real-time decision making in the fully autonomous cars of Waymo, Alphabet's self-driving car subsidiary. This is a big endorsement for the chipmaker's autonomous car technology as Waymo is the leader in self-driving cars by a fair distance, with its cars driving hundreds of thousands of miles last year and recording the lowest disgengagement rate, meaning humans had to take over less often.

More importantly, Intel can find its way into the lucrative ride-sharing market with the help of Waymo, which is reportedly planning on entering this space with Fiat Chrysler. To catch up with Intel, NVIDIA recently revealed its third-generation DRIVE PX autonomous vehicle platform, known as Pegasus. NVIDIA touts that this new chip as 10 times more powerful than its predecessor, and could enable full automation in cars that'll completely eliminate the need for human intervention.

Person reading a book inside a self-driving car.

Image Source: Getty Images

NVIDIA is going head to head with Intel by targeting the ride-sharing market with this chip, indicating that its partners in this space -- NuTonomy and Optimus Ride -- will be able to accelerate their time to market. These two companies are already working on the development of fully autonomous taxis, and the good news for NVIDIA is that 25 of its partners are already testing this chip.

However, Waymo could be the first to the market with an autonomous ride-sharing service that could be commercially launched as soon as next year in some areas. This means that Intel can steal a march over NVIDIA as its solution could be sold on a wider scale if Waymo decides to rapidly deploy more of its autonomous ride-sharing taxis.

Waymo selecting Intel in place of NVIDIA was a bit of a surprise as the first generation of NVIDIA's DRIVE PX automotive platform was launched in January 2015. By comparison, Intel's autonomous car push started gaining momentum just this year after it acquired Mobileye. The Israeli tech company has been working with 27 automakers to develop self-driving car solutions, and this includes 10 programs that are supposed to go into the production phase this year.

Can NVIDIA inject life into its automotive business?

Intel's ascent in autonomous cars and NVIDIA's automotive slowdown is definitely a cause for concern for the latter, but investors shouldn't lose hope. Chipzilla might be in the driver's seat right now, but NVIDIA has a slew of partnerships that could deliver results in the long run.

The autonomous vehicle market will get too big to be dominated by just one player. Intel looks like the one that's calling the shots now, but as NVIDIA's partners start deploying cars with its chips, it should witness a spike in automotive revenue. For instance, the DRIVE PX chip could be NVIDIA's ticket to the ride-sharing market, while its relationships with mass-market automakers such as Volkswagen AG and Toyota Motor could put its solutions in millions of cars.

NVIDIA CEO Jensen Huang recently said that it will take around four years for fully autonomous cars to hit the roads. The chipmaker is working with luxury car maker Audi to bring an artificial-intelligence-enabled car to the market by 2020.

Therefore, it is too early to conclude NVIDIA's future in the automotive business as the race is just getting started. The chipmaker could step on the gas once again as its huge partner ecosystem in the automotive space starts deploying its solutions on a commercial basis, though this could take some time to materialize as autonomous car technology is still in the nascent phase.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Nvidia, and Tesla. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.