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This Could Be the Best Tech Stock to Buy as a Bet on Self-Driving Cars, Virtual Reality, and More

Image source: Nvidia

Driverless cars and virtual reality are two of the hottest tech trends out there. There are many highly visible players in the space, but NVIDIA (NASDAQ: NVDA) is the company powering much of the potential of these headline-grabbing companies, and could be one of the best stocks to play these tech advances.

NVIDIA powers technology behind the scenes

NVIDIA is essentially an integrated-circuit and chipmaking company, and gets about 80% of its revenue from GPUs (graphic processing units) such as those used in desktop computers. Its other products include what are called SoCs (system-on-chips) that are often used in mobile devices. Its components are being used to power about 70% of the desktops being sold today, and it was recently announced that they will be in Microsoft's (NASDAQ: MSFT) new Surface desktop computer. But beyond the desktop market, the components NVIDIA is making for other technologies give it the potential for far more future growth.

Driverless cars

Tesla (NASDAQ: TSLA) announced in late October that it had ditched its former autonomous-vehicle chipmaker and would be using NVIDIA's technology instead. NVIDIA's automated driving technology, "Drive PX 2," gives the vehicles greater capacity to process visual data and use it to make precise situational decisions. And its recently launched Xavier SoC takes the technology a step further. NVIDIA is reportedly working with many other companies, too, including Chinese search engine company Baidu (NASDAQ: BIDU), which is working to have autonomous cars in China with in the next few years, including a self-driving shuttle by 2018.

NVIDIA's automotive segment sales have been exploding this year, with year-to-date auto revenue up 57% in October, and autonomous technology is likely to drive much more growth going forward.The deal with Tesla alone could mean hundreds of millions in additional annual revenue based on demand, and that's not even accounting for how much growth could be possible with all of the other car companies it's working with in this space.

The Tesla Model 3. Image source: Tesla Motors.

Virtual reality

Virtual reality (VR) has drawn a lot of interest for the ways it could be used in personal media, video games, and even video conferencing for business meetings. Because creating a realistic virtual experience requires very high-quality graphics, it takes powerful chip processors. Estimates for just how big the market opportunity will be for VR vary widely, from $70 billion by 2020, according to TrendForce, to $120 billion by that year as forecast by Digi-Capital.

NVIDIA is quickly becoming one of the most important names in this space. Already one of the leaders in powerful chips for gaming, it released details earlier this year about new graphics chips that would make laptops VR-ready. As recently as this summer, only a tiny percentage of laptops had VR capabilities. NVIDIA this year began rolling out graphics processors based on its Pascal architecture that closed the gap between laptops and desktops.

Image source: Nvidia

Time to bet on NVIDIA?

NVIDIA is making major strides in many of the most exciting and potentially high-growth sectors in the tech market. In addition to virtual reality and self-driving cars, NVIDIA is powering artificial intelligence systems, video games consoles, and many more technologies.

NVIDIA stock has gained over 250% in the past two years as a result of its incredible growth. As a result, the stock now trades at 47 times earnings, or 37 times next year's earnings estimates. That's certainly not cheap compared to the S&P 500 P/E average of 18 times earnings. Still, this company's position powering technology in high-growth segments, and its own long-term growth prospects, make it look like this stock could be a great bet.

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Seth McNew has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Baidu, Nvidia, and Tesla Motors. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.