When the CEO of the world's leading AI chip company compliments your self-driving technology, you're probably doing something right. Nvidia Corp. (NVDA) chief Jensen Huang had high praise for Tesla Inc. (TSLA) and its Full Self-Driving system this week, calling Elon Musk's approach to autonomous vehicles "state of the art" and frankly, "hard to criticize."

Huang Weighs In On Tesla's FSD Approach

Speaking with Bloomberg's Ed Ludlow on Tuesday, Huang was asked to explain how Nvidia's autonomous driving technology, called Alpamayo, differs from Tesla's FSD. The answer? Not as much as you might think.

Huang explained that the main distinction lies in sensor combinations. Nvidia's Alpamayo uses vision, radar, and LiDAR technology all working together, while Tesla famously relies on a vision-only approach with cameras. But here's the interesting part: despite these hardware differences, Huang said the underlying technology is "rather similar" to Tesla's.

"I think Elon's approach is about state of the art, as anybody knows, of autonomous driving robotics," Huang said. He added that he would "encourage" Tesla in its self-driving pursuits, which is a pretty strong endorsement from someone whose company is also developing competing technology.

Tesla's AI4 Chip Saves Billions

The timing of Huang's comments is particularly interesting because Musk has been talking up Tesla's in-house AI capabilities. The automaker's AI4 chip is apparently a major cost saver. Musk revealed that without its own chipset, Tesla would be spending double the $10 billion it currently plans to spend on training with Nvidia hardware.

That's a massive expense avoided, and it shows why vertical integration matters in the AI race. Musk also took the opportunity to criticize the broader auto industry for not investing enough in AI and autonomous driving technology. Meanwhile, Lucid Group Inc. (LCID) recently unveiled its own robotaxi prototype, suggesting the competitive landscape is heating up.

Musk Returns The Compliment

After Nvidia revealed its self-driving technology approach, Musk shared his own thoughts on the chipmaker's autonomous ambitions. He acknowledged that distribution could be a significant challenge for Nvidia as it tries to get its technology into vehicles at scale.

Still, Musk wished the company success in its autonomous efforts. He did note, however, that it might take a while before Nvidia's system poses a real competitive threat to Tesla's FSD. How long? Musk estimated the timeframe could stretch to five or six years before Nvidia's technology reaches a comparable level.

The xAI Connection

Despite the competitive dynamics in autonomous driving, Nvidia and Musk maintain a close business relationship in another arena. Nvidia is a "strategic investor" in xAI, Musk's artificial intelligence company, which recently announced it raised over $20 billion in Series E funding. That's a staggering amount of capital for an AI venture.

Other investors joining Nvidia in backing xAI include Cisco Investments (CSCO), the Qatar Investment Authority, and Abu Dhabi's MGX. The funding round underscores the massive capital flows into AI development and the interconnected relationships between major players in the space.

Price Action: TSLA declined 4.14% to $432.96 at market close, but gained 0.46% in after-hours trading, according to market data.