Nvidia Shareholders Receive Positive Updates from Amazon and Google Regarding Their Involvement
Tech giant Nvidia (NVDA 1.37%) has witnessed a staggering 1,000% surge in its share price since ChatGPT's launch in late 2022. This significant increase is a direct consequence of the artificial intelligence (AI) boom, with Nvidia holding a pivotal position in the thriving AI economy.
Nvidia reigns supreme in the market for data center graphics processing units (GPUs), accounting for an astounding 98% of shipments last year. GPUs are instrumental in expediting complex tasks, such as training AI models and running AI applications, thereby granting Nvidia a virtually uncontested market share in AI accelerators.
However, skeptics continuously point to custom AI chips developed by tech titans like Amazon (AMZN 1.26%) and Alphabet (GOOGL 0.06%, GOOG -0.24%) as a potential threat. While both companies boast their custom silicon for data centers, recent commentary could instill a sense of security among Nvidia investors.
Nvidia investors need not fret over Amazon's custom AI chips
Amazon Web Services (AWS) dominates the public cloud market, accounting for 31% of cloud infrastructure and platform-services spending in the third quarter. To capitalize on AI demand, AWS has engineered two custom AI chips: AWS Trainium, for training machine learning models, and AWS Inferentia, optimized for inference workloads. AWS Vice President Dave Brown recently offered reassuring insights for Nvidia backers. "Our aim is to be the best platform for Nvidia," Brown expressed. He further stressed that having alternatives is beneficial.
Even though AWS strives to capture market share, its approach appears half-hearted. The company nurtures its relationship with Nvidia, having been the first major cloud provider to offer Nvidia's H200 GPUs, and consistently promoting its partnership with the latter. Amazon CEO Andy Jassy underscored this collaboration during the latest earnings call, stating, "We have a strong partnership with Nvidia, leading their new chip launches."
Nvidia investors are not under threat from Google's custom AI chips
Alphabet's Google Cloud Platform brings in 13% of cloud infrastructure and platform-services spending in the third quarter. While the company is poised to expand market share due to its long-term investments in AI, it has yet to impact Nvidia's standing, despite a decade-long attempt.
Google has developed custom AI accelerators, or tensor processing units (TPUs), since 2011, with these chips deployed in Google's data centers since 2015. However, Nvidia GPUs remain the standard, with several analysts estimating the company holds as much as 80-95% market share in AI accelerators.
In spite of this, Google Cloud continues to foster its alliance with Nvidia. Alphabet CEO Sundar Pichai announced during the third-quarter earnings call, "We share a fantastic partnership with Nvidia. We're thrilled for the GB200s, and we'll lead its supply at scale." GB200s refer to a supercomputing chip incorporating Grace CPUs and Blackwell GPUs, both developed by Nvidia.
Nvidia boasts significant competitive advantages in software and vertical integration
Contending companies like Amazon and Alphabet's Google confront a formidable challenge. Nvidia not only delivers more potent AI accelerators but also boasts an unmatched ecosystem of software development tools. Over the past two decades, Nvidia has augmented its CUDA platform with numerous code libraries and pre-trained models.
The CUDA software platform fosters GPU-accelerated applications, spanning from autonomous machines to scientific simulations. Competing firms must surmount this hurdle to challenge Nvidia's dominance in the AI accelerator market, a feat considered highly unlikely, at least in the near future.
Analysts at Morgan Stanley and Goldman Sachs vouch for Nvidia's competitiveness, dismissing the possibility of rivals overtaking the market leader in the foreseeable future. As Joseph Moore at Morgan Stanley stated, "Competing against Nvidia is challenging, especially since they've shifted to an annual product cycle." Similarly, Toshiya Hari at Goldman Sachs declared, "Nvidia will remain the default industry standard for the foreseeable future, given its intertwined hardware and software capabilities."
Besides software, Nvidia enjoys a strategic advantage in its vertical integration. By complementing its GPUs with adjacent data center hardware, including CPUs, interconnects, and networking equipment, Nvidia constructs data center systems with the "lowest total cost of ownership," according to CEO Jensen Huang.
In conclusion, Nvidia investors need not worry about custom chips from Amazon and Alphabet's Google. Instead, the company is primed to maintain its market leadership in AI accelerators.
Nvidia's robust software ecosystem, built over two decades with the CUDA platform and countless code libraries and pre-trained models, serves as a formidable barrier for competitors like Amazon and Alphabet's Google. (containing: 'Nvidia', 'competitors', 'software', 'barrier')
The vertical integration of Nvidia's offerings, providing GPUs along with accompanying data center hardware such as CPUs, interconnects, and networking equipment, enables the company to offer the lowest total cost of ownership, giving it a competitive edge. (containing: 'Nvidia', 'integration', 'competitive', 'edge')
When considering your investment in Nvidia, focus on the company's continued dominance in AI accelerators, fueled by its software ecosystem and vertical integration, rather than potential threats from custom chips developed by competitors.
