Nvidia powers Volvo architecture, a high-growth category for the chip maker (NASDAQ:NVDA)

The latest buzzword to hypnotize the global auto industry is the “software-defined car,” a descriptor for increasingly electrified vehicles that contain features—some once mechanical—that now they are controlled by computers and software programs.

Volvo’s new EX90 large three-row SUV exemplifies the trend towards vehicles equipped with digital technology, which has gained momentum and is proving to be a growing opportunity for all kinds of high-tech suppliers, from radar and camera manufacturers to creators. of code.

NVIDIA Corporation (NASDAQ:NVDA) got involved in the automotive business more than a decade ago, providing graphics for automotive displays, a business that soon became a commodity. As autonomous driving, connectivity and active safety features such as automatic braking and over-the-air (OTA) updates have become more common, cars have required massive computing power, opening the door for chipset designers with supercomputing capability.

Tesla, Inc. (TSLA), best known for its success with batteries, can be credited with another key automotive innovation: a single central computer that controls all of a vehicle’s electronic functions, with additional chips for redundancy. Before Tesla’s single large computer, the electronic features of a typical car, such as windows, windshield wipers, infotainment and so on, were connected to an electronic control unit – the ECU – and all were networked and powered battery or generator.

All connected

The cables connecting the vehicle’s electrical components and their ECUs were heavy, bulky and carried only a limited amount of data.

Until 2019, Tesla supplied its vehicles with Nvidia’s Drive PX computing platform, which controlled advanced driver assistance systems (ADAS) – a precursor to autonomous driving. Tesla then moved on to its in-house designed computing platforms. The automaker continues to buy Nvidia’s famous H100 chips for AI training purposes.

Volvo’s decision to install central computers using Nvidia’s Drive Orin system on a chip for the first time in one of its models was prompted by the increasing use of cameras and sensors for advanced active safety and other features, which require a capacity and data processing speeds higher than lately are measured in trillions of operations per second – TOPS. Drive Orin, the company says, is rated at 254 TOPS.

The battery-powered EX90, which starts at around $81,000, will be equipped with radars, lidar and cameras and will be able to create a 360-degree view around the car that can detect small objects hundreds of meters ahead, perhaps push or warn a driver who is distracted or drowsy; Pilot Assist that adjusts speed, steering and braking; adjustment for the shape and intensity of the headlights; and two-way charging for using the energy to light a house or transfer energy to another Volvo EV.

More dates soon

Initially, Volvo’s lidar unit will be able to connect data, although it will not be integrated into the vehicle’s functions until a future date, which will be made by the OTA.

EX90 connectivity technology also facilitates OTA, so software can be repaired, upgraded and maintained without a dealer visit.

With opportunities and improvements in automotive software can come pitfalls. Volvo’s EX30, a smaller battery-powered car imported from China that was introduced in the U.S. earlier this year and pulled from the market due to U.S. tariffs, is said to have suffered a software glitch that affected the speedometer.

As AI replaces crypto as the buzz of the moment for the stock markets, Nvidia holds a top position among the most watched stocks for now. The company’s powerfully powered chips are needed to “train” AI algorithms. The enthusiasm for AI’s potential to increase the productivity of major industries is reflected in the company’s latest financial results, which are quite astounding.

First-quarter GAAP revenue for fiscal 2025 nearly tripled from a year ago, with net income nearly fivefold. Gross margins are a hair below 79%, up from about 67% a year ago. The AI ​​and supercomputing industries are literally begging for Nvidia chips and are willing to pay almost anything to get them.

Impressive figures

For now, automotive revenue and revenue make up one sliver of Nvidia’s business. First-quarter automotive revenue was $329 million (out of total revenue of $26 billion), up 17 percent from the previous quarter and up 11 percent from a year ago.

Among the large number of car companies buying Nvidia chips are Mercedes-Benz (infotainment), Jaguar Land Rover, SAIC, Rivian, Hyundai, Lucid, Polestar, Zoox and Cruise. In 2023, Chinese automakers BYD, XPeng, Li Auto and NIO announced that they will use Nvidia DRIVE Orin high-speed platforms in their vehicles. The global light vehicle market is on the rise, reaching 88.8 million in 2023 – more and more will be equipped with high-tech features that require advanced computer processing.

The future is not entirely bright. Since 2022, Nvidia has faced US government export restrictions on its chips to China, primarily for data centers, based on national security concerns. How chip shipments will be affected is unclear based on a variety of factors, including how extensively the White House wants to limit exports and the actions of other countries that might export Nvidia chips to China.

Volvo’s EX90 is a vehicle that seems immune to the danger of export controls disrupting its production. The future could be very bright for Nvidia’s auto business, as long as auto companies continue to shift to electronic architectures — as they seem to be doing — and as long as Nvidia remains a top contender among chip makers that include Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC). Alphabet Inc. (GOOG) (GOOGL), Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN)—major Nvidia customers—design their own chips for internal use.

Analysts looking for Alpha and its Quant Ratings have been more bearish on NVDA stock of late, likely because of the F grade for the rating. However, Quant’s growth, profitability and momentum notes remain quite strong. A new Nvidia Blackwell chip has been delayed, which has led to some hesitation among some analysts lately.

Generative AI — machine learning that uses language and other data to create new content such as text, video, music, sound and, yes, driving directions — strikes this analyst as a field whose growth is just beginning, and is is likely to be exponential.

Nvidia – which dominates its category with a head start and an enormous market capitalization – will experience ups and downs as competitors emerge. However, the company’s long-term trend looks quite positive and will benefit those holders with a long-term investment perspective.