Nvidia (NVDA) experienced a 2.6% drop in stock price on Tuesday following a report suggesting that the AI chip producer may face increased competition from one of its key customers, Google (GOOG, GOOGL).
The Information reported that Google is negotiating with Meta (META) for the latter to invest billions in utilizing Google’s AI chips, known as tensor processing units (TPUs), in its data centers by 2027. This marks a significant shift away from Google’s current strategy, which revolves around renting access to its TPUs to AI developers exclusively through Google Cloud, confining their use to Google’s own data centers.
Furthermore, Google is reportedly pitching its TPUs to other cloud customers, a strategy that could potentially capture up to 10% of Nvidia’s annual revenue, as per The Information’s findings. The stock of Nvidia’s competitor, Advanced Micro Devices (AMD), also fell more than 4% as a result of this news.
This development is emblematic of a growing trend where Nvidia’s major customers are evolving into direct competitors. Companies like Amazon (AMZN) and Microsoft (MSFT) have already begun crafting their own AI chips, with Amazon recently completing a substantial data center project that rents out its custom AI chips to notable developers, including Anthropic (ANTH.PVT). Google has also formed a significant partnership with Anthropic, while OpenAI (OPAI.PVT) conducted trials of the AI chips over the summer.
Speculation has intensified that Google is aiming to broaden its AI chip business to compete more aggressively with Nvidia. An investment firm, DA Davidson, noted in September that prominent AI labs have shown significant interest in acquiring Google’s TPUs, estimating that Google’s TPU division and its AI segment, DeepMind, could together hold a value of approximately $900 billion.
An Nvidia spokesperson acknowledged Google’s advancements, stating, “We’re delighted by Google’s success – they’ve made great advances in AI and we continue to supply to Google,” adding that “NVIDIA is a generation ahead of the industry.”
The dip in Nvidia’s stock price on Tuesday reversed gains made in the prior trading session, during which tech stocks were beginning to recover from a recent downturn. Nvidia and other major tech shares have faced mounting scrutiny in recent months, with concerns over a potential AI bubble impacting their market performance.
Additionally, Nvidia has drawn criticism regarding self-reinforcing AI connections, as the company invests in customers while also being the leading AI chipmaker. Notably, investor Michael Burry, known for his role in the “Big Short,” has recently expressed skepticism about Nvidia’s future, likening the AI market dynamics to the dot-com bubble of the early 2000s.
Despite these challenges, the ongoing developments in AI technology present a broader narrative of innovation and competition within the sector. As companies continue to push the boundaries of artificial intelligence, it remains to be seen how these dynamics will unfold in the market.