This is Nvidia’s fastest growing segment – and it’s not data center or gaming

on Nov. 16, Nvidia (NVDA 3.00%) reported its financial results for the third quarter of fiscal 2023 (ending October 30). The report revealed a slowdown in overall sales. The company is a leading maker of advanced semiconductors and has experienced red-hot growth over the past two years, so its recent results provided a reality check for investors.

But it’s not all bad news. Nvidia’s largest segment is the data center, and it’s still expanding at a strong pace, though not nearly as fast as the much smaller automotive segment.

Nvidia is becoming a leader in hardware and software for autonomous self-driving vehicles, and some of the world’s largest automakers have signed on to use it. Here’s why this emerging segment could boost Nvidia’s growth for the rest of this decade.

The evolution of Nvidia continues

For several years leading up to and including fiscal 2022 (ending January 30), gaming was by far Nvidia’s largest source of revenue. The pandemic accelerated that trend due to social restrictions and lockdowns, which created a consumer frenzy for Nvidia’s latest and greatest graphics chips.

But that tailwind dissipated during fiscal 2023 and the company’s gaming business collapsed again — it saw a 51% year-over-year revenue decline in the recent third quarter alone.

Nvidia’s data center segment is now in charge of the company’s fate, with the most revenue and robust growth even in tough economic times. Businesses are eager to harness the power of their information, and Nvidia’s advanced artificial intelligence chips help them extract unique insights from that data, which can help drive sales and reduce costs.

But there’s another business unit at Nvidia that’s getting less attention because it currently generates very little revenue compared to gaming and the data center, even though it grew at lightning speed in Q3.

Nvidia’s automotive segment could shape the company’s future

In the third quarter, revenue in Nvidia’s automotive segment grew a whopping 86% year over year. The absolute number was relatively small at $251 million, accounting for just 4.2% of the company’s total revenue for the quarter, but if it continues to grow at that rate, it’s likely to become a more influential piece in the very near future .

A graph of Nvidia's quarterly automotive revenue.

Nvidia signed deals with 35 of the world’s largest automakers. These companies want to implement self-driving capabilities in their vehicles by using Nvidia’s Drive platform. As an example, electric vehicle manufacturer Nio (NIO 5.50%) uses Drive in his Adam supercomputer, which powers all of his cars and is capable of a whopping 1,000 trillion operations per second.

It enables the vehicle to drive autonomously in urban areas and on highways, and it can even self-park.

Based on revelations Nvidia has made in previous quarters, we know it has built a sales pipeline of at least $11 billion, which will be vested over the next six years. But the company continues to win new customers and deepen ties with existing customers. In 2024, Mercedes-Benz is expected to be one of the first major brands to bring Nvidia-powered self-driving cars to the road at scale.

The financial opportunity in this space is set to explode, with an estimate from Allied Market Research suggesting it could be worth more than $2.1 trillion by 2030.

Nvidia shares are down 52%, and that’s an opportunity

Nvidia shares are crushed under the pressure of the weakening economy and an oversupply of semiconductors as manufacturers scrambled to fill the shortfalls created after the pandemic. But none of these challenges are likely to last in the long run.

In fact, peak inflation in the US may already be behind us, which could boost consumer spending in the new calendar year. If that revitalizes Nvidia’s gaming segment, the company could be poised for a strong return to growth.

In any case, Nvidia continues to innovate in that segment with its GeForce Now cloud-based gaming platform. It allows its 20 million users to effectively stream over 1,400 games online, so they don’t have to worry about downloading updates or patches.

With Nvidia’s data center segment going strong, the auto industry booming and the gaming industry heading into a potential recovery next year, Nvidia’s stock could be a good buy here, as it’s down 52% from its all-time high .

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