Jensen Huang Just Signed AI Factory Deals Across Japan's Biggest Manufacturers. What That Means for Nvidia's Growth.

Artificial intelligence (AI) is moving beyond just cloud computing for software. It is moving into the real world and onto the factory floor.

One example of this is Nvidia's (NASDAQ: NVDA) recent partnership in Japan. The country is a leader in advanced manufacturing techniques and wants to maintain its lead in the age of AI and robotics. Japan is creating a 44-company consortium of industrial giants, called Noetra, to bring AI onto the factory floor, powered by Nvidia.

Here's the skinny on Nvidia's deal with Japan, and what it could mean for the stock going forward.

Image source: Nvidia.

Robotics as the next stage of AI development

The collection of companies operating under the Noetra umbrella is part of the Japanese government's drive to remain relevant in the age of AI. Specifically, it aims to dominate advanced manufacturing techniques while remaining relatively independent of Chinese- and United States-based AI models.

To spark this growth, the Japanese government is providing $6.1 billion in subsidies for AI across manufacturing and industrial use cases. Nvidia was chosen as the compute backbone for the investment and is providing its advanced GPU clusters to power these innovations.

It is unclear exactly how much the Japanese government and Noetra group will spend on Nvidia chips, but it could be in the tens of billions over many years. Sovereign AI investments are a growing theme in places like Japan, South Korea, and the Middle East, as a way to diversify away from the leading private companies from the U.S. and China. Nvidia has positioned itself to benefit from both use cases.

What does this mean for Nvidia?

Japan and its industrial giants are poised to invest billions in AI infrastructure in the years ahead, with Nvidia powering it. While this will not be a negative for the company, it is actually small compared to the overall revenue.

In the last 12 months, Nvidia's revenue was $253 billion. It had $37.4 billion in revenue from AI cloud and industrial use cases last quarter alone, excluding the traditional hyperscaler cloud computing business. This is up from $21.5 billion in revenue from the same quarter a year prior.

Noetra is a part of this growth segment for Nvidia, but still a small part of it. The big question for Nvidia and its price-to-earnings ratio (P/E) of 35 is whether it can maintain its aggressive growth rate at such a massive scale, not whether Japan decides to subsidize less than $10 billion in AI compute capacity for factories.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.