The Auto segment of Nvidia (NVDA) is the smallest contributor in terms of quarterly revenue. It only contributed $142 million in Q2 FY18. The Auto segment can probably see a big spurt in growth when Nvidia starts shipping its Drive PX Pegasus next year. Drive PX Pegasus is Nvidia's ambitious license-plate-sized in-vehicle datacenter-level processor intended for level 5 (or fully autonomous) robotaxis. There are now 25++ companies developing Nvidia Drive PX-based robotaxis. (Source: NVIDIA)
Anything that can help increase the quarterly revenue of Nvidia's Auto business unit is an important matter that should be discussed here. To gauge just how important self-driving car technology-related products like the Drive PX Pegasus, read on Google's (GOOG) (NASDAQ:GOOGL) billion-dollar legal suit against Uber allegedly receiving Waymo trade secrets.
The Drive PX Pegasus is 10x more powerful than the Drive PX 2 hardware. It can reportedly match the compute power of a 100-server datacenter rack. I consider this new hardware from Nvidia as the super-sized version of Intel's (INTC) neuromorphic processor.
A little tweaking from Nvidia and Drive PX Pegasus can also self-learn like a human brain. Simultaneously, it can still deliver over 320 trillion operations per second compute performance without being tethered to the cloud. (Source: NVIDIA)
The Drive PX Pegasus could catapult Nvidia as the go-to processor supplier of the $38 billion/year ride-hailing industry's adoption of robotaxis. Goldman Sachs also expects the ride-hailing industry to grow to $285 billion by 2030.
The Drive PX 2 Pegasus level 5 autonomous car processor can make Nvidia the enabler of some unicorn companies. The massive valuation of ride-sharing firms/taxi-hailing like Uber ($68 billion) and Didi Chuxing ($50 billion) can probably come true when they start augmenting their human-driven cars with Nvidia-powered robotaxis.
Nvidia can usher in the datacenter-in-a-car concept. Now that AMD is encroaching the high-end gaming/workstation GPU market with its Vega GPUs, Nvidia needs to work harder growing its Auto and datacenter GPU businesses.
Why I Am Optimistic About Robotaxis
Since Intel and Advanced Micro Devices (AMD) won't have an equalizer to the Drive PX Pegasus, Nvidia can sell it at a high markup. After government regulators approve level 5 autonomous cars on the road, taxi fleet operators and ride-sharing companies will start using them. It is probably going to take 3-5 years before government regulators approve level 5 robotaxis. However, Nvidia's surging valuation is already boosted by its potential role as the top supplier of semiconductor products for self-driving cars.
The three-year return of NVDA is more than 1,000%. Nvidia launched its Drive PX hardware/platform in March 2015. Nvidia priced its first Drive PX car processor at $10,000 and it still found acceptance. There are now more than 25 car manufacturers who work with Drive PX hardware. We have to conclude that the Auto segment is a contributor to the massive 3-year return of NVDA. No other company has matched Nvidia Drive PX's level of acceptance among car manufacturers.
Going forward, self-driving taxis can be better taxi-hailing service providers than human driven cars. More often than not, human drivers tend to burden me with stories about politics, their health, their family, their favorite TV shows and sports teams. I am ride-sharing to get from Point A to Point B. I do not need the additional aggravation of listening to another person's ills/problems/thoughts.
If the travel time will take more than 30 minutes, I would prefer to nap rather than petty talk with a human driver. Robotaxis will assure me I won't be driven around by chance by a sickly/DUI driver. Unlike a human driver, the Nvidia Drive PX Pegasus-based robotaxi won't consider kidnapping or robbing its passenger.
The Gaming segment is currently the biggest revenue/profit generator of Nvidia. However, AMD will eventually take more market share in discrete gaming/mining GPUs. Nvidia developing more GPU products for Auto and datacenter is commendable. As far as I know, AMD still has no car-centric GPU in the pipeline.
As per released specs, the 500-Watt Drive PX Pegasus will come with 2 integrated Volta GPUs and 2 discrete post-Volta GPUs. The first Volta GPU, the Tesla V100 comes with 21 billion transistors, 5,120 CUDA cores, and 640 Tensor cores.
The Drive PX Pegasus is a stellar example of how far Nvidia has achieved in making its formerly gaming-only GPUs become in-demand for other enterprise-level, scalable applications. The rapid appreciation of Nvidia's market cap over the last twelve months is because many investors believe in the future roles of GPUs in datacenter/deep learning and self-driving cars.
NVDA is a buy. According to the Artificial Intelligence-powered Relative Valuation Model of FundamentalSpeculation, NVDA is fairly valued.
FundamentalSpeculation derived a fair value of $182.74 for NVDA. It came about after FundamentalSpeculation's AI computed the average valuation ratios of other companies with similar business fundamentals of Nvidia to get the Cohort Fair Value. After which, the Cohort Fair Value was modified with values derived from calculating the average valuation ratios of Nvidia's peers in the Technology sector and Computer Hardware Industry.
Disclosure: I am/we are long NVDA, AMD, INTC, GOOG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.