300 billion reasons to buy Nvidia shares
Nvidia (NVDA -4.50% ) stock has been reduced in landfills so far in 2022; Shares of the graphics card specialist are down nearly 18% on the selloff in the tech sector.
But investors looking to buy high-growth stocks should consider capitalizing on Nvidia’s price decline as there are several reasons to expect its business to maintain what has in fact been tremendous growth. One such reason relates to the automotive market, where Nvidia sees a major revenue opportunity that could accelerate its long-term growth.
Nvidia’s Automotive Opportunity
Right now, games are Nvidia’s main source of revenue. The segment accounted for $12.5 billion in sales — or 46% of the company’s revenue — in its 2022 fiscal year, which ended Jan. 30. And management sees a $100 billion revenue opportunity in the video game segment.
Yet the opportunity Nvidia sees in the automotive segment is much larger: $300 billion. The automotive segment generated $566 million in revenue in fiscal 2022, just over 2% of company revenue. Additionally, the automotive business only grew by 6% last year, which pales in comparison to the 61% revenue growth recorded by Nvidia’s gaming business in fiscal year 2022. .
However, investors should keep in mind that gaming is a mature market for Nvidia. The company has been selling graphics cards for personal computers and high-end game consoles for over 20 years now. It has established a grip on this market, controlling a share of more than 80% by the end of 2021. Meanwhile, Nvidia’s automotive business has yet to reach critical mass.
That said, it won’t come as a surprise if auto revenue eclipses the company’s gaming revenue going forward. Research and Markets analysts predict that the global autonomous vehicle market will generate $327 billion in revenue by 2030, growing at an annualized rate of 22.6% over the forecast period.
That’s faster and bigger than the gaming GPU (graphics processing unit) market, which is expected to grow 14% annually through 2026, according to Mordor Intelligence. Jon Peddie Research points out that $51.8 billion worth of gaming cards were sold in 2021. Applying a compound annual growth rate of 14% to this number for the next nine years would increase the size of the GPU market gaming to $167 billion by 2030.
The good part is that the company is pulling the right levers to take full advantage of its opportunities in the automotive market.
Next step: the automotive market
Nvidia’s automotive business may soon start moving the needle in more important ways for the company. This is because it has already built an $11 billion design pipeline in the automotive segment, which it expects to convert into revenue over the next six years. By comparison, Nvidia’s automotive business has generated just under $3.5 billion in revenue over the past six fiscal years.
So Nvidia’s automotive revenue could more than triple over the next six years from the past six years, assuming it converts all of its design earnings into actual sales. But more importantly, Nvidia has built a strong base of partners in the automotive industry that could help it further develop its portfolio of design wins and record stronger growth.
Hyundai, Mercedes, Tata Engines‘Jaguar and Landrover, VOLVO, Navistarand BYD are among many corporate partners of Nvidia for its comprehensive self-driving platform. Additionally, 20 out of 30 electric vehicle companies, seven out of 10 trucking companies, eight out of 10 robotaxi companies, and all 30 autonomous vehicle data center vendors build their solutions using Nvidia’s Drive platform. .
Nvidia’s end-to-end solutions for the automotive market are why it has already landed such an impressive array of partners.
For example, the company has launched a mapping platform for self-driving car developers that will provide them with high-definition maps of major highways covering more than 500,000 kilometers of roads in North America, Europe and Asia. It also features Drive Hyperion, a modular and scalable platform consisting of sensors and an artificial intelligence computing platform for the development of Tier 2 and Tier 3 autonomous driving solutions.
Nvidia’s comprehensive suite of hardware and software solutions for the automotive market places it in a strong position to benefit from the rise of connected and self-driving cars. Wells Fargo Analyst Aaron Rakers predicts Nvidia could capture half of connected subscription services and software features in the automotive space.
As the company is only scratching the surface of all these great opportunities, investors shouldn’t be surprised if the auto market gives this tech giant a major long-term boost.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.