Prediction: This Chipmaker Will Power AI in Every Electric Vehicle by 2030

Key Points

• Artificial intelligence tech is just now starting to become the norm in newly made vehicles.

• While several companies are building vehicular artificial intelligence solutions, only one is designing bumper-to-bumper platforms.

• 10 stocks we like better than NXP Semiconductors ›

We're not quite there yet, but artificial intelligence tech will soon be standard in most -- if not all -- automobiles, and electric vehicles in particular. A recent outlook from Global Market Insights suggests the worldwide automotive AI market is likely to grow at an average annual pace of nearly 43% through 2034.

And there's one chipmaker that's quietly positioned to dominate this business even though plenty of bigger players already have their toes dipped into this market. That's NXP Semiconductors (NASDAQ: NXPI). Here's why.

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But first things first.

AI is already found in plenty of vehicles

It's further along than you think. Self-driving-capable cars like many of Tesla's and some of Mercedes-Benz's S-Class and EQS vehicles, of course, require artificial intelligence often using purpose-built hardware from Nvidia and a handful of other semiconductor companies. In fact, Nvidia's Drive AGX is considered one of the best autonomous-driving platforms in the business. That's why the aforementioned Mercedes-Benz along with electric vehicle outfits Rivian, BYD, Li Auto, and a handful of other EV names are all embracing Nvidia's self-driving solutions.

Autonomous navigation is only a small part of the opportunity at hand, however, even if it is the most impressive part. What's happening under the hood (proverbially, but also literally) as well in the cabin are also subject to improvements with the use of artificial intelligence. Case in point: Apple's CarPlay allows iPhone owners to connect their mobile device to their vehicle, turning their car's entertainment and information interface into an extension of the smartphone itself. And yes, it can be managed with Apple's voice-activated AI assistant Siri.

Then there are AI-powered predictive maintenance systems like General Motors' OnStar, which connects to a vehicle's sensors to identify potential problems before you find yourself stranded, or before a small problem turns into an expensive one.

None of this technology could be considered standard just yet, and certainly no single vehicle has every such solution already built in at the factory. That day is coming though. And much like the mainstreaming of AI itself, once it starts, it's going to happen fast.

NXP's place in the business

As for NXP Semiconductors, it may be one of the most important companies you've never heard of. You'll find its tech in HVAC systems, home appliances, aircraft, hospitals, and more.

Perhaps more than anywhere else though, you'll find NXP tech in your car, and increasingly, especially in your EV. This includes radar systems required by autonomous driving and safety systems, although it doesn't stop there. The company's got solutions that integrate tire pressure monitoring systems, lighting, suspension and braking, pumps, and even interior comforts like air conditioning, cabin lighting, or onboard entertainment.

NXP stands particularly ready for the EV revolution that's currently underway everywhere except the United States. Its battery management system, for instance, optimizes the charging as well as the driving-based discharging (including dynamic traction control) of the energy-dense lithium batteries that make electric vehicles possible, ultimately extending their driving range. In this vein, Volkswagen -- one of the leaders of the global electric vehicle race -- already uses NXP's battery-management platform for its advanced EV batteries.

This is no small matter, either. The batteries required by electric vehicles are the EV industry's biggest stumbling block. They don't last forever, and they're expensive to replace. Indeed, the lithium batteries found in most electric vehicles right now only last 10 to 15 years or 100,000 to 150,000 miles before they become unusable, which doesn't sound too bad until you learn it can cost anywhere between $5,000 and $20,000 to replace them, depending on their size.

This cost is coming down thanks to advancement and scale. Still, that's a big upfront/one-time cost to keep an EV on the road. Any solution that can make an electric vehicle's battery last as long as possible is an important one.

It's not just the battery-management tech inside the car though. Charging them properly also extends their life while simultaneously lowering overall EV operating costs. NXP's EV charging station tech is capable of optimizing the charging process as well as provide the digital security needed to remotely operate public charging stations.

Moreover, Ford Motor -- which recently doubled down on its EV efforts aimed at U.S. drivers -- has been tinkering with NXP's connected car platform, while BMW and Hyundai have given NXP Semiconductors awards for allowing the two carmakers to design and manufacture next-generation vehicles. BMW utilizes NXP's tech for its digital key system, while Hyundai is using the company's aforementioned safety-radar system.

Perfectly positioned to do the unexpected

Can little NXP Semiconductors (with a market cap of only $60 billion) actually compete with bigger and deeper-pocketed players like Nvidia or Qualcomm, the latter of which has purpose-built a version of its popular Snapdragon processor to specifically serve the automotive market with features that include almost everything described above? For that matter, can NXP meaningfully penetrate a market where most automobile manufacturers seem to want to develop as much of their own AI tech as possible and only rely on third-party hardware when they have to?

The answer is yes, it can.

For the time being, forget all the relationships it's already forged with the majors like Ford, Volkswagen, BMW, and a few others. For all the attention the movement seems to be getting, the fact is, most of the automobile industry actually isn't yet diving into the deeper waters of artificial intelligence, including some of the more prominent EV makers. Much of what they are doing is admittedly impressive. But advanced technology just isn't their core competency. They're going to need sweeping bumper-to-bumper solutions like NXP's to remain ahead of -- or simply keep up with -- competing carmakers' efforts to do the same.

In fact, the next-generation automobile industry's fragmented technological landscape might actually work to NXP Semiconductor's advantage.

See, it's not clear how or even if Nvidia's autonomous driving tech will integrate with other onboard AI solutions, just as it's difficult to know if GM's OnStar in-dash interface will be familiar enough to drivers who already own an iPhone and would rather just plug their voice-activated mobile device into their car's entertainment system. NXP's platforms are one of only a few (and maybe even the only true) complete AI-powered end-to-end automobile solutions that any carmaker could readily integrate into their vehicles.

This might help convince you: Despite the company's somewhat cyclical lethargy evident in last quarter's result, the analyst community still overwhelmingly considers NXPI a strong buy.

Bottom line? Don't get so wrapped up looking at the recent past that you forget to look at the likely long-term future. Again, Global Market Insights thinks the automotive AI tech market is set to grow by more than 40% per year through 2034. You won't find a much better tailwind than that, nor will you find a company better equipped to plug into it than NXP Semiconductor.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, Qualcomm, and Tesla. The Motley Fool recommends BYD Company, General Motors, NXP Semiconductors, and Volkswagen Ag. The Motley Fool has a disclosure policy.