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 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.
