Will NVIDIA's Strategy Prevail in Self-Driving Cars?

Self-driving cars have been making plenty of headlines lately, though we are still very early in terms of actual usage. Still, many believe that we are on the cusp of a once-in-a-lifetime paradigm shift in how we move about our lives. With various approaches to the technology and many companies jumping into the fray, there's no guarantee that the leaders of today will even be in the running tomorrow.

Examples of companies developing the various parts and systems abound, from Detroit to Silicon Valley and everywhere in between. With the multitude of technological innovations at various stages of development, it would be difficult at this point to know which company or what technology will eventually prevail. For investors, this presents a conundrum as to how to make a meaningful investment in a field that is sure to change our lives and fortunes.

While there are no guarantees, the approach taken by NVIDIA Corporation (NASDAQ: NVDA) may provide investors with the best opportunity to cash in on the emerging segment without rolling the dice.

The brains behind the operation

Self-driving cars require a host of components not present in traditional autos in order to safely navigate, including vision systems, radar, LiDAR (light detection and ranging radar), as well as the brains to integrate all of the information, make decisions based on the data, and operate the vehicle. That's where NVIDIA comes in.

NVIDIA's graphic processing units (GPUs) were the early choice for training artificial intelligence (AI) systems. The ability to provide enormous numbers of mathematical calculations that allow GPUs to excel at rendering graphics is also what makes them the perfect choice for training AI. Deep learning AI systems are modeled on the structure of the human brain and require massive infusions of data to learn. GPUs allow the systems to process that data much more quickly than would otherwise be possible.

The same is true regarding the technology used in self-driving cars. The system is based on AI and must make millions of calculations to assess the inputs regarding road conditions, other vehicles, pedestrians, and cyclists, and make decisions regarding speed, braking, and steering based on those factors.

Making it all come together

For this purpose, NVIDIA developed the DRIVE PX system, which is capable of fusing data from a variety of cameras, radar, LiDAR, and ultrasonic sensors and creating a digital reconstruction of the environment that allows it to better make these decisions.

NVIDIA has partnered with an increasing number of automakers and tier 1 suppliers that are using this system as the foundation for their self-driving efforts. Big automakers using NVIDIA systems include Toyota, Honda, Daimler AG's Mercedes, Audi, Tesla, and BMW. The company also has agreements with two of the world's largest auto component suppliers Bosch and ZF.

Also, it recently announced a wide-ranging partnership with Chinese search giant Baidu, Inc. (NASDAQ: BIDU) that includes the use of NVIDIA's DRIVE PX 2 AI supercomputer as the basis of Baidu's self-driving car platform. Baidu has taken the unusual step of open sourcing its autonomous vehicle technology and has itself garnered a large number of partnerships.

It's not the destination but the journey

NVIDIA has been prospering from its early investments in AI. In its most recent quarter, NVIDIA's revenue jumped 48% from the prior-year period. While its gaming segment turned in solid numbers, it was the company's AI revenue from the data center segment that turned heads, up a whopping 186% year over year.

By providing the brains for AI based self-driving cars -- which run on its GPUs -- NVIDIA believes that it will be able to parlay that into even more astounding results for years to come. That's a sound strategy that's good for the company -- and investors as well.

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Danny Vena owns shares of Baidu and Tesla. The Motley Fool owns shares of and recommends Baidu, Nvidia, and Tesla. The Motley Fool recommends BMW. The Motley Fool has a disclosure policy.