What A Possible AMD-Tesla Deal Means For Nvidia

Tesla Inc TSLA is reportedly working with chipmaker Advanced Micro Devices, Inc. AMD to develop chips for driverless vehicles that incorporate artificial intelligence technology. While the partnership is certainly good news for AMD investors, shares of NVIDIA Corporation NVDA, which also has a partnership with Tesla, were seen down more than 2 percent Thursday morning.

In a new note to clients, RBC analyst Mitch Steves said Nvidia investors have nothing to be worried about. According to Steves, there is plenty of Tesla business for both Nvidia and AMD, and the AMD news is just noise for Nvidia (see his track record here).

Steves says Nvidia investors should be prepared for AMD to steal a certain amount of market share in the auto and low-end data center markets, but Nvidia will remain the gold standard. Steves pointed out that Nvidia also has auto partnerships in place with a range of other companies, including Uber and Toyota Motor Corp (ADR) TM.

“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. In fact, Steves says any news of increased investments in AI technology is good news for Nvidia in the long term.

In the near term, however, Steves says Nvidia traders should be prepared for some market volatility.

The AMD/Tesla news came just one day after Bernstein analyst Max Warburton said Tesla’s self-driving technology is “exaggerated” and that there is very little difference between the autonomous driving capabilities of Tesla and German automakers, such as BMW BMWYY and Volkswagen AG (ADR) VLKAY (see his track record here).

RBC maintains an Outperform rating on Nvidia and a Neutral rating on Tesla.

Related Link: Analyst: Tesla's Self-Driving Technology Is 'Exaggerated'