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In an announcement on Wednesday, October 19, which exceeded the expectations of industry analysts, Tesla (NSDQ:TSLA) CEO Elon Musk revealed that all new Tesla cars will be equipped with new "Hardware 2" and new software, gradually introduced over time, which will eventually enable the cars to drive themselves, The Wall Street Journal reports. The company plans to self-drive a fully autonomous car from Los Angeles to New York in a demonstration by the end of next year, and deliver self-driving cars to consumers ahead of the competition.

The Tesla Autopilot system, launched in October 2015, uses cameras, radar sensors, ultrasonic sensors, and GPS, to allow a car to autonomously change lanes, search for parking, parallel park, and adjust its speed based on traffic flow. The new hardware and software modules are presented as incremental Autopilot updates.

“It will take us some time into the future to complete validation of the software and to get the required regulatory approval, but the important thing is that the foundation is laid for the cars to be fully autonomous at a safety level we believe to be at least twice that of a person, maybe better,” said Musk. As the new software is validated Tesla will beam it, with over-the-air software updates, to cars equipped with the new hardware.

According to Tesla, the new hardware has eight surround cameras able to provide 360 degrees of visibility around the car at up to 250 meters of range, twelve updated ultrasonic sensors able to detect objects at nearly twice the distance of the prior system, and a forward-facing radar with enhanced processing.

"A new onboard computer with more than 40 times the computing power of the previous generation runs the new Tesla-developed neural net for vision, sonar and radar processing software," notes the Tesla news release. "Built on a deep neural network, Tesla Vision deconstructs the car's environment at greater levels of reliability than those achievable with classical vision processing techniques," states the Tesla website.

As reported by Tech Crunch and other sources, Musk said that the new onboard computer is based on the NVIDIA (NSDQ:NVDA) Titan Graphical Processing Unit (GPU).

The last version of the Titan GPU, dubbed Titan X, is a high-performance computer with special features for running neural network software, Machine Learning (ML) and other Artificial Intelligence (AI) application. "Just as electricity 100 years ago transformed industry after industry after industry, I think AI powered by deep learning will now do the same,” said AI pioneer Andrew Ng on occasion of the Titan X launch event. "One of the things I admire about NVIDIA is it’s breaking new ground."

The partnership between Tesla and NVIDIA for autonomous driving hardware is not surprising. In fact, NVIDIA has been building up a leadership position in the sector of embedded high-performance components for autonomous self-driving cars for quite some time.

In January, at the Consumer Electronics Show (CES) 2016 in Las Vegas, NVIDIA launched the NVIDIA DRIVE PX 2 in-car Artificial Intelligence (AI)-powered supercomputer to enable smart cars to sense the world around them and drive themselves. At the time, the NVIDIA DRIVE PX 2 was presented as the world's most powerful engine for in-vehicle AI for autonomous cars.

But, earlier this month at the first GPU Technology Conference Europe, NVIDIA announced Xavier, a new Artificial Intelligence (AI) supercomputer. Xavier is a complete System-on-Chip (SoC) built with 16nm FinFET process technology, more powerful than the DRIVE PX 2, designed for use in self-driving cars. NVIDIA also announced a joint effort with car navigation system developer TomTom to create a cloud-to-car mapping system for self-driving cars, and an AI software toolkit for autonomous driving dubbed DriveWorks, with Machine Learning (ML) modules based on deep neural networks.

Tesla is pivoting toward the clean energy sector, where it's trying to establish a leadership position in power storage and distribution networks, but without abandoning the automotive sector. In fact, the company is advancing incrementally, step-by-step, towards fully autonomous cars, expected to be the next big thing. These are good reasons to be optimistic about the near- and long-term performance of Tesla stock. At the same time, NVIDIA stock is likely to remain a top performer.