The Best Self-Driving Car Stock Might Surprise You

The era of self-driving cars is nearly upon us, and as drivers learn to adapt to this new technology, investors also need to adapt to a changing stock market. As we look for stocks in the automotive industry, we have to start looking past the traditional carmakers to find those that are on the forefront of the autonomous vehicle revolution.

While the giants of the industry, including General Motors (NYSE:GM) , Ford (NYSE:F) , and Fiat Chrysler (NYSE:F) , are all working on their own self-driving cars, the companies driving this revolution are the ones developing the components that will be used to build and power these vehicles.

(Also Read: Your Ultimate Guide to the Self-Driving Car Market)

With that said, one of the best stocks related to the self-driving car boom right now is Nvidia Corp. (NASDAQ:NVDA) . This semiconductor giant may be best known for its GPUs in the video gaming industry, but the company has recently expanded its automotive segment to become a leader in this area.

Learning to DRIVE

Nvidia’s self-driving car offerings fall under its DRIVE Automotive Technology banner, which supplies its automaker partners with systems that enable cars to see, think, and learn. The company currently offers a self-driving car computer, a digital cockpit computer, and an auto-focused deep learning computer. Nvidia’s Tegra brand of mobile processors is also adaptable for in-car use.

Nvidia also boasts a long list of car-making partners, including Volkswagen’s (OTC:VLKAY) Audi brand, Daimler’s (NYSE:F) Mercedes-Benz brand, Honda Motor Company (NYSE:HMC) , BMW (NYSE:F) , and Volvo VLVLY.

During its most recent investor day, Rob Csonger, Nvidia’s VP of Automotive, highlighted several key details in an auto-focused presentation. Csonger pointed to both strong historical growth in the company’s Automotive division and the potential for future growth as two reasons to be optimistic about this segment of the company.

According to the presentation, Nvidia expects to see its Automotive division post revenues of $320 million this year, which would represent growth of 75% year-over-year. It also expects development platform shipments to continue to pick up speed, with just over 1,200 total shipments expected in the second half of the year versus the roughly 900 seen in the first half. Nvidia also predicts autonomous driving engagements will nearly quadruple in the second half of 2016.

Looking to the future, Nvidia sees an available market of 20 million cars for digital cockpit products, 15 million cars that will need its self-driving car technology, and a “couple million” cars that will focus on transportation as a service. The company estimates that these markets have the combined opportunity of $6 billion to $10 billion.

Nvidia also detailed its current strategy in the automotive business, and the company’s four-step plan calls for a focus on artificial intelligence for car computing, further development of its DRIVE program, the implementation of upgradable software to eliminate costs, and the support of an open platform system for all developers.

Bottom Line

Currently, Nvidia is a Zacks Rank #1 (Strong Buy) stock. Since it posted its latest earnings beat of nearly 19%, analysts have been adjusting their future estimates for Nvidia upwards. We have already seen 11 positive revisions for its current-quarter earnings, as well as 10 for its next-quarter earnings.

On top of its individual earnings data, Nvidia falls into a category of semiconductor companies that currently sits in the top 7% of the Zacks Industry Rank. For our full analysis on the state of that market, check out our latest guide: Should You Be Buying Semiconductor Stocks Right Now?