Nvidia Analysts See Multibillion-Dollar Opportunity In Automated Driving Deal With Mercedes-Benz

NVIDIA Corporation NVDA announced Tuesday an automated driving system partnership with Daimler AG's DDAIF Mercedes-Benz.

The Nvidia Analyst: BofA Securities analyst Vivek Arya maintained a Buy rating on Nvidia with a $420 price target. 

Needham analyst Rajvindra Gill maintained a Buy rating and $400 price target.

Credit Suisse analyst John Pitzer reiterated an Outperform rating and $425 price target.

BofA Sees Long-Term Opportunity: The partnership, which provides for every next-gen Mercedes car rolled out from 2024 onward coming with a software-defined computing architecture powered by Nvidia technology, builds on prior engagements with Mercedes in infotainment and robotaxis, Arya said in a note.

The analyst sees limited near-term financial implications. Yet Nvidia's first full-stack autonomous win could signal the start of a multiyear business transformation that could unlock a $700-billion total addressable market in autonomous vehicle AI hardware, software and recurring services, he said. 

"Today autos accounts for less than 5% of sales, so there is a long and largely incremental runway for growth that can supplement NVDA's leadership in gaming/data center."

Needham Expects More Automotive OEM Partnerships: The technology partnership with Mercedes-Benz will pave the way for future full stack partnerships with other automotive OEMs, Gill said in a note. 

The software-defined computing architecture for automated driving is to be built on Nvidia's DRIVE platform using its upcoming Orin SoCs, the analyst said. 

"Along with Datacenter and Gaming, we view Automotive as a major long-term growth opportunity for NVDA, which we believe is the leader in the automotive SoC space." 

See also: Here's How Long It Took Nvidia To Reach A $100B Market Cap

Nvidia Best Secular Growth Stock, Credit Suisse Says: The agreement provides a tangible "traditional" revenue stream of silicon/hardware with optionality around an unproven albeit interesting "non-traditional" software-based recurring revenue stream, Pitzer said in a note. 

The Mercedes agreement represents a potential traditional TAM of over $1 billion to $2 billion revenue per year; 80 cents to $1.60 of EPS; silicon/hardware content of $500 to $1,000 per vehicl;  incremental operating margins of 55%; and 10% of the total revenues, the analyst said.

Credit Suisse sees additional upside stemming from software updates and AV "skills" such as parking, valet and racing.

Software add-ons alone could drive more than $2 billion per year of highly visible, highly profitable and highly valued revenue from Mercedes alone, Pitzer said. 

"We continue to see NVDA as the best secular growth stock in Semis with an almost open-ended TAM protected by first movers advantage and wide/deep moats in both silicon AND software." 

NVDA Price Action: At last check, Nvidia shares were down 1.82% at $371.13 at the time of publication Wednesday. 

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Photo courtesy of Nvidia.