300 billion reasons to buy Nvidia before this budding business becomes a giant

Let's take a closer look at where Nvidia's automotive business is right now and check why it could become the next big growth driver for the company.

| More on:
A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) has gotten into a habit of capitalizing on lucrative growth trends over the years, and it looks like the company is now on its way to making the most of another massive market that's currently in its early phases of growth.

From gaming personal computers (PCs) to cryptocurrency mining to high-performance computing (HPC) and now artificial intelligence (AI), Nvidia has managed to hit gold in multiple end markets that have now helped it become the third-largest company in the world (as of this writing). It looks like the company is going to add the automotive business to that list.

In this article, we will take a closer look at where Nvidia's automotive business is right now and check why it could become the next big growth driver for the company.

Nvidia's automotive business is set to step on the gas

Nvidia finished fiscal 2025 (which ended on Jan. 26) with automotive revenue of $1.7 billion, an increase of just 5% from the previous year. However, this business boomed significantly in the final quarter of the year, with revenue more than doubling from the year-ago quarter.

Looking ahead, Nvidia is expecting its automotive revenue to grow to $5 billion in fiscal 2026. That would be a jump of nearly 3x from the previous fiscal year. The reason why Nvidia is confident of achieving such impressive growth in its automotive business this year is because of the fast-improving demand for the company's solutions by major automakers and component suppliers.

Earlier this year, the company announced a partnership with Toyota, pointing out that the world's largest automaker will "build its next-generation vehicles on Nvidia Orin running the safety-certified Nvidia DriveOS." Meanwhile, self-driving technology company Aurora and German automotive component giant Continental will also be deploying the company's DRIVE Thor computer system for launching driverless trucks.

Importantly, this isn't the only place where Nvidia is winning in the automotive segment. Hyundai has selected Nvidia's solutions for developing autonomous driving systems in simulated environments. Additionally, the Korean automotive giant is also going to use Nvidia's Omniverse digital twin platform for designing products and creating prototypes. Hyundai also plans to use Omniverse for optimizing its existing and upcoming manufacturing facilities to "improve production quality, streamline costs, and enhance overall manufacturing efficiencies."

And now, automotive giant General Motors has announced a partnership with Nvidia to optimize its factory planning. GM will also use Nvidia's Drive platform to develop advanced driver assistance systems (ADAS) along with improving the safety of its vehicles. Nvidia's Blackwell-based Drive AGX system has also been selected by automotive components giant Magna International to integrate AI capabilities into vehicles.

These partnerships demonstrate that automakers and component suppliers are increasingly turning to Nvidia to develop next-generation vehicle technologies and fine-tune their factory operations with digital twins. At its investor day held in 2022, Nvidia pointed out that it sees a massive addressable opportunity worth $300 billion in the automotive space. For perspective, that's higher than the $100 billion opportunity it saw in gaming at that time and equal to the $300 billion revenue opportunity it outlined for its graphics cards and chip systems.

The new partnerships Nvidia has announced of late have put the company well on its way to realizing the lucrative automotive opportunity, which is why the company expects its revenue from this segment to triple this year. As such, it won't be surprising to see the automotive business becoming the next big pillar of Nvidia's growth in the long run, as the world's leading companies are now using its technology.

More reasons to buy the stock

There was a time when gaming was Nvidia's biggest source of revenue. Then came data centers and AI, and this discussion suggests that automotive could become the next big play for the company. Investors, however, will do well to note that AI is likely to remain a top growth driver for Nvidia for a long time to come.

The company dominates the market for data center graphics cards, putting it in a terrific position to capitalize on secular growth trends such as accelerated computing and AI inference. Moreover, it is making a dent in the enterprise AI software market as well. All this explains why analysts have continued raising their earnings growth expectations from this semiconductor giant over the past few months.

NVDA EPS Estimates for Current Fiscal Year Chart

NVDA EPS Estimates for Current Fiscal Year data by YCharts

So, the arrival of additional catalysts should ideally help Nvidia sustain strong levels of bottom-line growth in the long run, which is why buying this tech stock right now could turn out to be a smart move, since it trades at an attractive 26 times forward earnings.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended General Motors and Magna International. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Man on his laptop standing next to data centres.
International Stock News

Nvidia stock nears its all-time high. Is it a buy now?

Nvidia blows away expectations again, and it still might be just getting started.

Read more »

Happy man working on his laptop.
International Stock News

Can Nvidia stock hit new heights? CEO Jensen Huang just provided clear and compelling evidence that the answer is "Yes."

The chipmaker just answered bears who feared the company's growth streak had stalled.

Read more »

A tech worker wearing a mask holds computer chip up to the camera.
International Stock News

Nvidia does it again

Nvidia shares have rallied more than 40% since 21 April.

Read more »

Semiconductor chip on top of piles of mini US and China flags.
International Stock News

Tariff negotiations could derail Nvidia's China business. Here's why I'm not worried about It.

New export controls around China could serve as a serious headwind for Nvidia.

Read more »

A head shot of legendary investor Warren Buffett speaking into a microphone at an event.
International Stock News

Warren Buffett-led Berkshire Hathaway has 21% of its $276 billion portfolio in 1 stock that's up 644% in 9 years

Investors need to know what company this is. Perhaps it deserves a closer look for your own portfolio.

Read more »

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
International Stock News

Amazon just sent a massive warning to Nvidia investors

A new AI investment from the cloud computing leader could signal a shift in its strategy.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Countdown till Nvidia's earnings report: What to expect?

Nvidia reports Q1 earnings on May 28.

Read more »

A man in a suit face palms at the downturn happening with shares today.
International Stock News

Which Magnificent 7 company was threatened with fresh tariffs over the weekend?

The news was not well received by investors.

Read more »