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When Will NVIDIA’s Automotive Business See Strong Growth?

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Nov. 20 2020, Updated 4:01 p.m. ET

NVIDIA’s Automotive business

In the previous part of the series, we saw that NVIDIA’s (NVDA) Professional Visualization business has shown limited growth, as the VR (virtual reality) trend is slow to pick up and Advanced Micro Devices (AMD) is also eyeing the VR market. The case is similar with NVIDIA’s automotive business.

NVIDIA has been earning automotive revenue by selling car infotainment solutions. For the past few years, it has been focusing on AV (autonomous vehicles) and has been at the forefront of this technology. AV cars have strong growth potential, but this technology is taking time to hit the roads, thus creating more competition. Intel (INTC) entered the automotive segment in calendar 2016 and acquired ADAS (advanced driver-assistance systems) maker Mobileye in 2017.

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Although NVIDIA entered the AV market early and secured early wins with Tesla (TSLA) and partnered with 225 auto OEMs (original equipment manufacturers), it lost Tesla’s business to Intel in 2017. Moreover, an Intel blog stated that its CPUs (central processing units) are powering Alphabet (GOOG) subsidiary Waymo’s self-driving cars. This growing competition is reducing NVIDIA’s first-mover advantage.

Automotive revenue

NVIDIA’s automotive revenue growth slowed from 18% sequentially in fiscal 4Q16 to 0.8% in fiscal 4Q17 to -8.3% in fiscal 4Q18. For fiscal 1Q19, we expect NVIDIA’s automotive revenue to remain sequentially flat at $132 million.

Despite growing competition, NVIDIA is continuing its efforts in the AV space by partnering with giants like Uber, Volkswagen, and Baidu, and developing new technologies such as an autonomous vehicle safety simulator “Drive Constellation.” If NVIDIA’s efforts in AV pay off and driverless vehicles on the roads are legalized, which automotive players believe could happen in 2021, NVIDIA’s automotive segment would likely see strong revenue growth.

Good and bad of NVIDIA’s product mix

If NVIDIA’s bets in VR and autonomous driving pay off, the company could witness substantial growth in earnings. However, if these bets fail, the company could continue to deliver stable growth, as the efforts in these areas are being paid for with high cash flows from the company’s gaming and data center segments. NVIDIA is the leading GPU (graphics processing unit) supplier in these markets.

However, the real threat for NVIDIA would come when competition increases and growth slows in the gaming and data center markets. There are rumors from Motley Fool analyst Ashraf Eassa, which have been reported by Forbes and TweakTown, that Intel is developing its own discrete GPU for gaming and data center. Intel has already made inroads in the PC gaming space with the launch of Kaby Lake G gaming laptop processors integrated with AMD’s Vega M GPU. Next, we’ll look at NVIDIA’s profitability.

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