Nvidia Could Make Nearly $2 Billion In 2 Years From Toyota Self-Driving Car Deal

The decision by Toyota Motor Corp (ADR) TM to use NVIDIA Corporation NVDA to power the automaker’s autonomous driving systems could generate $1 billion to $1.7 billion in incremental sales over the next two years, according to analysts.

A note by Needham analysts Rajvindra S. Gill and Robert B. Mertens maintained Nvidia's Buy rating and raised the target price from $130 to $200. The stock was up 2.57 percent Monday at $150.53.

Toyota announced in May it will use Nvidia’s Drive PX supercomputer, a platform with a new processor called Xavier, for its self-driving cars.

The analysts said Toyota plans to deploy Level 2 Advanced across all of its major models, from Corolla to Lexus, by 2020. Level 2 autonomy means systems that can control steering and speed without driver interaction for limited periods of time.

“Given NVDA's dominant technological position across L2-L5 and the sheer number of vehicles migrating to L2+ (25-30 million based on our proprietary model), applying 40x P/E on earnings power of 5+ is reasonable, in our view,” the analysts said.

“And it's not just Toyota. NVDA is quickly developing an ecosystem of L2-L4 designs with major OEMs.”

Invidia also has partnered with Volvo AB (ADR) VOLVY on autonomous driving technology.

At time of publication, shares of Nvidia were up 3.2 percent at $151.45.

Related Link: 4 Big Takeaways From NVIDIA’s Sell-Side Meeting