Each day, the average American spends about one hour driving, wasting a significant amount of time that could otherwise be spent on more rewarding or productive activities. But the loss of life is even worse. Last year, an estimated 46,000 people died in motor vehicle accidents on U.S. roadways, and the figure is much higher globally.
The makers of self-driving cars assert that their tech-influenced products will solve those problems, and the companies they manage will create tremendous wealth in the process. In fact, Ark Invest management said it believes autonomous ride-hailing platforms will add $26 trillion to global gross domestic product (GDP) by 2030. Nvidia ( NVDA -1.55% ) and Tesla ( TSLA -2.41% ) are two companies well positioned to capitalize on that opportunity.
Nvidia is a semiconductor company that specializes in high-performance computing. Its core innovation is the graphics processing unit (GPU), a chip capable of processing tremendous amounts of data very quickly. To that end, GPUs are used to accelerate compute-intensive workloads like artificial intelligence. In fact, Nvidia holds over 90% market share in the supercomputer accelerator industry.
Collectively, strength across its gaming and data-center businesses has fueled strong financial results in the past. Over the last year, revenue surged 61% to $26.9 billion, and free cash flow skyrocketed 73% to $8.1 billion. But Nvidia’s automotive segment — which generated just $566 million (a fraction of its total sales) in the last 12 months — looks like the company’s next big growth opportunity.
This year, Nvidia Drive Orin will enter vehicle production lines. Orin is a system-on-a-chip (SoC) capable of performing more than 250 trillion operations per second. It’s the in-vehicle supercomputer that will power Nvidia’s Drive software, the AI platform that integrates sensor data (e.g., lidar, camera) in real-time, allowing autonomous vehicles to perceive and move safely through their environment.
Of particular note, Nvidia has already established partnerships with an array of automakers and robotaxi companies, including Nio and General Motors‘ Cruise. Better yet, those partnerships mean Nvidia has over $8 billion in its automotive pipeline, representing cash the company will recognize as revenue over the next six years. But that figure only scratches the surface of its true market opportunity. In fact, management values the self-driving software industry at $25 billion by 2025, and given its reputation as the gold standard in AI, Nvidia is well-positioned to capitalize on that opportunity.
Last year, Tesla once again ranked as the leading manufacturer of electric cars, capturing 14.4% market share. Despite semiconductor shortages and widespread supply chain disruptions, the company managed to produce over 930,000 vehicles, up 83% from 2020. Better yet, Tesla posted an industry-leading operating margin of 14.6% in the third quarter, and that figure rose to 14.7% in the fourth quarter.
Collectively, greater vehicle output and improving manufacturing efficiency fueled a strong financial performance. Over the past year, revenue rose 71% to $53.8 billion, and free cash flow rose 30% to $3.4 billion. But the future looks even brighter. CEO Elon Musk recently said people will eventually see Tesla as an AI robotics company. He also noted that, in the long run, its full self-driving (FSD) software will be the most important source of profitability.
That makes sense. With nearly 2 million autopilot-enabled vehicles on the road, Tesla has access to a tremendous amount of driving data. In fact, Director of AI Andrej Karpathy said the company had 3 billion miles worth of data in early 2020, and some analysts put that figure at over 5 billion today. By comparison, rivals like Alphabet‘s Waymo and GM’s Cruise measure their miles in the millions.
Better yet, Tesla recently introduced its proprietary D1 chip, the semiconductor that will power its Dojo supercomputer, which promises to be the world’s fastest AI training machine. Dojo is set to launch in the summer of 2022, and if all goes as planned, it will accelerate Tesla’s ability to train the AI models that power its FSD software. Additionally, it will allow Tesla to branch into cloud services, as the company plans to leverage Dojo to offer AI training as a service.
In short, Tesla has more data and better technology than its competitors, and that makes it a leader in the race to build a fully autonomous vehicle. In fact, Musk believes the company will achieve full autonomy this year. And after that happens, Tesla plans to launch a ride-hailing service, entering a market that Ark Invest believes will generate $2 trillion in annual profits by 2030. That’s why this monster growth stock is shaping the future of technology.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.