Tesla-AMD Partnership Likely A 'Modest' Negative For Nvidia, But Its Competitive Moat Still Substantial

Reports surfaced Wednesday that Tesla Inc. TSLA has partnered with semiconductor company Advanced Micro Devices, Inc. AMD to develop artificial intelligence-based driverless automobile chips.

There’s no question a deal with Tesla would be bullish for AMD stock, but NVIDIA Corporation NVDA stock is down 3 percent on Thursday as investors wonder what a Tesla-AMD deal could mean for Nvidia’s relationship with Tesla.

According to B. Riley analyst Craig Ellis, news of an AMD-Tesla deal is little more than a headline as far as Nvidia investors are concerned.

“We believe the development has potential to be a modest fundamental and psychological negative for NVDA in the intermediate-term, though believe the company remains the dominant autopilot solutions provider with a substantial competitive moat and very strong developer momentum,” Ellis wrote on Thursday.

In addition, he said it would be very surprising to see Tesla shun Nvidia for its own internal solutions, at least in the next year or two.

In the meantime, Ellis pointed out that Nvidia has a long and growing list of other auto partners, including Toyota Motor Corp (ADR) TM and Volvo AB (ADR) VOLVY.

Ellis’ comments echoed similar analysis from RBC analyst Mitch Steves, who said Nvidia investors have nothing to worry about.

“Overall, we think Nvidia remains as the primary workhorse/engine while AMD chips are used for specific applications to avoid giving Nvidia 100% of the AI content in self-driving vehicles,” Steves wrote.

B. Riley maintains a Buy rating and $200 target for Nvidia stock, while RBC maintains an Outperform rating and $205 target.

Related Link: What A Possible AMD-Tesla Deal Means For Nvidia

Image Credit: yoggy0 from Yokohama, Japan (SIGGRAPH Asia 2009) [CC BY 2.0], via Wikimedia Commons