Nvidia(NASDAQ:NVDA) is in a position that any chip designer would envy. The company dominates the high-growth market for artificial intelligence (AI) chips, and that leadership has contributed to Nvidia's triple-digit revenue growth in recent quarters, as well as a sharp rise in stock performance . Over the past five years, the stock has soared a staggering 2,600%, and it's continuing that momentum this year, heading for a gain of more than 180%.
This major chip company has its share of competitors, other chip designers like Advanced microdevices And Intel to its own customers – due to their internal chip projects. For example, customers including Metaplatforms And Amazonhave built their own AI chips to complement their suite of Nvidia graphics processing units (GPUs). Nvidia also faces up-and-coming players like Cerebras Systems, a company that aims to launch an initial public offering (IPO) soon.
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This list of competitors may seem worrying to Nvidia and its investors, but Nvidia chief Jensen Huang recently said something that appears to be bad news for its competitors.
Image source: Getty Images.
First, let's consider where Nvidia stands today. The company, which initially focused on serving the gaming community with its GPUs, has now expanded the GPU in many other areas. And it is in AI that it stands out. Customers turn to Nvidia for GPUs to power their data centers and projects for one simple reason: its GPUs are the most powerful on the market.
This year, the company launched the H200, a chip that offers inference performance that's twice as fast as its predecessor, and it quickly reached revenues in the double-digit billions. Nvidia recently said the H200 represents its fastest production ramp-up to date.
Now, Nvidia is heading toward an even bigger launch: the release of its Blackwell architecture and its most powerful chip ever. The company aims to increase production in the current quarter and generate several billion dollars in revenue from the platform almost immediately.
As mentioned, there is strong competition in the AI chip market, and these competitors' products are priced lower than Nvidia's. In fact, Amazon Web Services, Amazon's cloud computing arm, even developed an AI chip called Trainium with cost-conscious customers in mind. One concern some investors may have is that this quest for savings could drive customers away from Nvidia and toward other players.
But CEO Jensen Huang said something during the company's recent earnings conference call that shows where Nvidia stands when it comes to its customer costs — and that could be seen as very bad news for competitors .
Huang explains that even in the largest data centers, power is limited and so performance per watt is essential. “Because our performance per watt is so good compared to anything else out there, we generate the highest possible revenue for our customers,” says Huang.
This means that even if customers spend more on Nvidia GPUs, the high performance translates into higher revenue. This could offset the initial investment and make Nvidia's product the best deal for a customer over time. As potential customers consider their AI options, this point will come up – and it could tempt some to go with Nvidia.
Does this mean investors in Nvidia's competitors should be concerned? Not necessarily. Nvidia isn't putting other AI chip designers out of business. With the AI market expected to reach $1 trillion by the end of the decade, it will take more than one provider of AI accelerators and related products for competitors to succeed without toppling Nvidia .
However, Nvidia investors should view Huang's comment as fantastic news, as it suggests that Nvidia is conquering one of its biggest risks – and is here to stay as the leader in AI chips.
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