Tesla has attracted a lot of attention on autonomous driving software, but I think another company is a better opportunity for AI-powered cars in the long run.
Given how AI is sweeping the world, my mind almost immediately begins to think about how technology is affecting areas such as data analytics and drug discovery.
These use cases tend to attract the most attention, but AI also plays a quiet and large role in the automotive industry. From voice recognition assistants to the rise of autonomous driving, AI paves the way for the future of transportation.
Explore nvidia (NVDA) -1.51%)) I’m going to assess why I see why I’m involved in the automotive sector and top-picking Tesla at the intersection of AI and automobiles.
How is Nvidia involved in the automotive industry?
Nvidia offers many products and services for sale to the automotive industry. For example, the company’s Omniverse platform allows companies to build digital twins in real-world environments to simulate how vehicles behave in certain conditions (i.e., pedestrians walking on the weather, traffic, and roads).
Additionally, the Nvidia Halos system combines the appropriate hardware and software development and car manufacturers and models needed to bring autonomous functionality to a functional product from a prototype.
Nvidia’s main role in the automotive sector is to help bring a technology-driven layer into the automotive manufacturing process. This is to lead a new wave of safety and cost-effectiveness.
Image source: Getty Images.
Keep an eye on Nvidia’s automobile growth
According to the company’s website, Nvidia lends its AI services to many top automotive businesses, including Rivian, Toyota, BYD, Mercedes-Benz and Hyundai. While this is impressive, I think Nvidia’s most notable move in the automotive business took place earlier this month at the company’s GTC meeting.
At the meeting, Nvidia revealed that it will partner with General Motors to tackle many AI-powered solutions for its automobiles. As part of the transaction, GM will use Nvidia Omniverse, Cosmos and the drive AGX platform to build more advanced systems for drivers and improve manufacturing efficiency at GM’s factory.
The table below classifies Nvidia revenues from the car segment during the 2024 calendar year.
Category Q1 Q2 Q3 Q3 Q4 2024 Automotive Income $329 million $346 million $449 million $570 million $1.7 billion
Data Source: Nvidia.
Nvidia’s revenue from the automotive segment increased 55% year-on-year in 2024. That’s $1.7 billion in revenue from the business accounts for just about 1% of NVIDIA’s total revenue last year.
During the company’s fourth quarter revenue call, management was managed, with the automotive business increasing nearly tripled this year to $5 billion in revenue.
Currently, the Automotive segment is Nvidia’s fastest growing business outside of data centers. Still, even considering this rapid scale, car sales aren’t even a small part of Nvidia’s overall operations.
The new partnership with GM is seen as a sign that legacy automakers, lagging behind more automotive businesses, particularly other catalysts that fuel the automotive industry, such as electric vehicles (EVs), are looking for ways to level out new waves of growth, supported by growing interest in AI.
Why we consider Nvidia to be the biggest beneficiary of AI-powered vehicles?
When it comes to AI and automobiles, it is not possible to consider that two companies other than Nvidia and Tesla have the most potential benefits.
While Tesla has made significant advances in its autonomous driving ambitions, there is a rather robust argument that the widespread adoption of self-driving vehicle software depends on the company’s future adoption. Without AI, investors could argue that Tesla is just another automaker and not so much a technology business. The automotive industry is extremely competitive, and many companies are forced to compete at prices to promote demand and sales. In the long run, such strategies can reduce profit margins and curb innovation.
On the other hand, when it comes to AI and cars, I think Nvidia is an opportunity to be more insulated. If more vehicles are equipped with AI-powered services, I think Nvidia will have a clear opportunity to take on existing partnerships with automakers to expand its overall presence in the automotive sector.
In other words, long-term investments in Tesla may require strong conviction that the company will separate its autonomous driving vision. In contrast, Nvidia doesn’t necessarily need Tesla to succeed. Because the company has the luxury of partnering with many automotive businesses around the world that are trying to build an AI roadmap.
For these reasons, I consider Nvidia to be a greater beneficiary of autonomous and AI-powered services in the automotive industry compared to competition.
Adam Spatacco has positions in Nvidia and Tesla. Motley Fool has jobs at Nvidia and Tesla and recommends. Motley Fool recommends BYD Company and General Motors. Motley Fools have a disclosure policy.
