Nvidia's Mercedes Deal Could Add $5.5B in Annual Revenue

'Nvidia would capture revenues for both the software application sale and a recurring subscription for upgrades,' wrote Jefferies analyst Mark Lipacis.
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Nvidia  (NVDA) - Get Report analysts reacted enthusiastically to Tuesday’s announcement that Daimler's  (DMLRY)  Mercedes-Benz will buy the chip maker’s newest processor for autonomous and semi-autonomous vehicles.

“NVDA would capture revenues for both the software application sale and a recurring subscription for upgrades,” Jefferies analyst Mark Lipacis wrote of the deal in a commentary.

“Long-term, we estimate the MB deal could add $5.5 billion in additional annual revenue. But most importantly, NVDA is layering a recurring software revenue model in autos, healthcare, conversational artificial intelligence and robotics that expands its total available market, margins, revenue stability and growth.”

The partnership will help Mercedes-Benz develop in-vehicle computing system and AI that will enable over-the-air software upgrades for automated driving and other in-car functionalities.

Those functionalities include the ability to “automate [the] driving of regular routes from address to address,” the companies said.

Lipacis has a buy rating on Nvidia, with a share-price target of $415.

J.P. Morgan analyst Harlan Sur also offered positive comments about the tie-up between Nvidia and Mercedes Benz.

“It’s the first full-stack design win for Nvidia that unifies hardware, software, and cloud service capabilities under one comprehensive system,” he said. “And it demonstrates Nvidia’s platform/ecosystem focused strategy,” he wrote in a report.

“Nvidia is well-positioned to continue to benefit from the major secular trends in AI, high performance computing, gaming and autonomous vehicles.”

Sur has an overweight rating on Nvidia, with a $405 price target.

Nvidia shares recently traded at $378.62, up 0.16%, and have soared 77% over the last three months.

Daimler shares were up 0.39% Wednesday.

Nvidia is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells NVDA? Learn more now.