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The autonomous vehicle (AV) industry is developing into a near-trillion-dollar secular trend over the next decade; the long-term opportunity is massive. The peer group in this segment includes Micron, AMD, C3Ai, Mobileye (Intel), Renesas and Qualcomm, amongst other smaller players. Nvidia’s AV 6-year business pipeline accounts this business for $11B which in turn should result in some $2B in revenues.

Starting 2016, NVDA has taken the market-lead for developments for semi-autonomous to autonomous vehicles, with a range of products and an expanding list of customers and partners supporting long-term growth in the segment. The company’s major clients are in China, i.e., XPeng (XPEV), NIO (NIO), Li Auto (LI), Baidu (BIDU), Geely's (GELY), Hyundai (HYML), Jaguar (STLA), BMW, Tesla (TSLA) and Mercedes (MBGA), amongst others. The company is scaling up its business through a partnership with Pony.ai in China.

According to Bloomberg, NEF's 2022 EV outlook projected that China "will operate the world's largest robotaxi fleet with about 12 million units by 2040, followed by the US which operates around 7 million autonomous vehicles." In total, robotaxi fleets are likely to be in excess of 22 million, considering that other nations aside from the US and China are developing AV plans. This is a promising market opportunity and CAGR should be in the region of 40% annually.

ADAS/AD segment:

Over the past years, Nvidia has built-up strong competences to support the production and adoption of ADAS-equipped vehicles. The main features required by such applications are all kinds of sensors, lidar, radar and cameras which will enable semi-autonomous functions, therefore surpassing status 3 out of 5 for autonomous vehicles (Level 0 - No Automation, Level 1 – Driver Assistance, Level 2 – Partial Automation, Level 3 – Conditional Automation, Level 4 – High Automation, Level 5 – Full Automation). For this take place, new mapping platforms are required, and it can be expected that beginning in 2025 over 300’000 miles in the US, Europe and Asia will be charted for testing. Along with 5G for back and forward communication between each vehicle, these specialty chips developed for ADAS/AD have a much broader application. They can be used in aerospace, robotics, defense, medical, and wearables, and this list could be extended. This is an extended market opportunity for Nvidia and its peer group.

The entire virtualization technology is moving fast towards an industrial-oriented process, and powerhouses like Intel, Qualcomm, and others are working hard to come along with practical applications. Qualcomm estimates that its ADAS/AD chip market share is reaching as much as $19 billion; if so, the Snapdragon platform could be the major challenger for Nvidia.

What is the downside of all this?

The company’s chip sets A100 and H100, respectively Xavier and Orin, are designed to be used in machine learning tasks and autonomous driving opportunities. For both chip sets, Nvidia’s major market exposure is in Asia and in particular China. Geopolitical tensions and trade embargos are a major threat to the company’s strategy. As such, the US government has ordered Nvidia and AMD to stop selling AI enabling chips to China.

While short-term the price pressure on GPU units will prevail, we believe that longer-term the supply-demand equation will again be skewed to the right, especially as new, better applications will be pushed out to the market. The present share price doesn’t reflect, according to us, this scenario.  As of now, investors are licking the wounds from the price adjustments following the crypto currency re-adjustments, i.e., less units sold for the crypto miners. Nevertheless, Nvidia’s shares are a highly attractive long-term buying opportunity, and we would expect, once the market turns around, a share price of $350 is possible within the next 15 to 18 months.