The woes of a shrinking PC market are widely known and it has not only hurt the operations for core PC makers but also entities that manufacture ancillary products. As a result of the smart devices revolution, most PC markets including Hewlett-Packard and Lenovo have already entered the smartphones market and quite recently, Nvidia Corp (NASDAQ:NVDA), a computer graphics pioneer was in news for making a similar move. As per reports, Nvidia is all set to sell its computer tablets under the brand Shield in an attempt to increase the appeal of its products among gamers.
The automotive business is heating up
While it remains to be seen if this latest innovation from Nvidia targeting to engage gamers will improve the company’s presence in mobile but it is already making strides in another market i.e automotive. It is estimated that by 2019, the connected car market will be worth $132 billion, according to Transparency Market Research, growing at a phenomenal annual rate of almost 35%. On the other hand, as IHS Automotive points out, self-driving cars could account for 9% of global auto sales in 2035, hitting 11.8 million units. Nvidia has identified the opportunity presented by the Internet of Things (IoT) concept and has already started consolidating its position.
- Warning! GuruFocus has detected 4 Warning Signs with NVDA. Click here to check it out.
- NVDA 15-Year Financial Data
- The intrinsic value of NVDA
- Peter Lynch Chart of NVDA
The next generation of cars will come with sensors for every single thing and as such, Nvidia seems to be in a sweet spot. In January, at the Consumer Electronics Show, NVIDIA announced that its new Tegra K1 processor will help self-driving cars become mainstream. With this chip, NVIDIA is bringing supercomputing technology to cars, as the GPU powers 10 of the most energy-efficient supercomputers in the world. Based on the Kepler architecture, the Tegra K1 is armed with a quad-core CPU and a 192-core GPU, enabling camera-powered advanced driver assistance systems.
Revenue from Tegra gaining strength
The strength of Tegra in automotive applications was clearly evident in the first quarter results as the company grew its revenue from the Tegra processor by 35 percent. More and more cars are wanting to become computerized and because the automobile industry is improving on the back of a strengthening US economy, Nvidia might see consistent revenue growth from Tegra in coming quarters. In respect of self-driving cars, the demand for visual computing is even higher. Pedestrian detection, blind-spot monitoring, lane-departure warning, street sign recognition, and driver alertness are some of the features that NVIDIA is looking to power with its chip. In addition, these applications are expected to generate a sizable amount of data, requiring efficient supercomputing capabilities
A basket of brands
Computerized cars are already becoming the order of the day and big names have started using Nvidia’s products. Audi and other automakers like Porche, BMW are now using both Qualcomm Inc. and Nvidia chips to connect cars to the Internet and make them aware of their surroundings. Top-of-the line Audi AG models use more than 6,000 semiconductors. A demonstration version of the A7 sedan running an Nvidia Tegra processor drove itself onto the stage at the graphics-chip maker’s annual conference in March.
The market for automotive chips is projected to increase 6.1 percent to $27.9 billion this year, according to a report from IHS Corp. The fastest growth will be in processors for automated driver-assistance systems, which may rise an average of 13 percent annually through 2020, the Englewood, Colorado-based research firm said.
Google: The star customer
In June, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) hosted its I/O conference in which one could not miss Tegra K1 mobile processor’s colossal fame. The management team of Google gave a peek into its Android “L” operating system that is powered to support 64-bit CPU architectures. Nvidia is already developing L on the 64-bit version of Tegra mobile processor and hence the collaboration of Google and Nvidia will bring world-class PC gaming technologies to mobile devices. Besides mobile, the other attention catching announcement was around Android Auto, Google’s mobile platform in cars. Back at the start of the year, Nvidia joined Google along with other brands like Honda, Audi and Hyundai to form the Open Automotive Alliance (OAA) with the intent of improving Android smartphone experience inside the car. Nvidia's Director of Automotive, Danny Shapiro, recently called out a blog post on Google's self-driving initiative. He stated that his company has been mastering visual computing for 20 years, indicating that its GPUs can be an ideal foil for Google's self-driving cars.
Since the beginning of this article, I have focused mainly on the opportunities presented by the automotive segment for Nvidia. The reason is that Internet of Things (IoT) is anticipated to be a trillion-dollar opportunity and one of the sections that will have a direct impact is automobiles. Hence, the gaining traction of Tegra processors produced by Nvidia is an indication of things moving in the right direction. The market is huge, and Nvidia is partnering with the right companies to make the most of the opportunity. In the coming quarter therefore, Nvidia’s stock price would see positive momentum, making it a suitable candidate for your portfolio at this point in time.