Nvidia (NASDAQ: NVDA) has been one of the best stocks to invest in since the beginning of 2023. The rise is based on the huge demand for artificial intelligence (AI) processing power. Much of this demand comes from big tech players, but one big tech company recently said no to Nvidia.
Although Apple (NASDAQ: AAPL) was late to the artificial intelligence industry, but the product was eagerly anticipated. To the surprise of many, Apple did not use Nvidia GPUs (graphics processing units) to power its AI model. Could this be a sign that Nvidia’s GPU empire is starting to crack?
GPUs are the most popular option for training AI models
Nvidia GPUs have become incredibly popular for running AI workloads. Nvidia GPUs are best in class, and the company has industry-leading software available to squeeze every last bit of performance out of the GPUs. This is important because these servers running AI models contain thousands of GPUs. GPUs are a top choice for these types of workloads because they can perform many calculations in parallel, unlike the central processing units (CPUs) found in PCs. They are also good at other tasks, such as cryptocurrency mining, engineering simulations, and drug discovery.
But since they’re not purpose-built for AI calculations, there’s probably a better way to do calculations. These chips exist, and they’re not made by any of Nvidia’s traditional competitors.
One of these alternatives is Alphabet‘S (NASDAQ: GOOG)(NASDAQ: GOOGL) tensor processing unit (TPU). Alphabet’s TPU is purpose-built for these large AI calculations, but it’s limited in flexibility. When a workload is set up properly, TPUs blow away the performance of Nvidia’s GPUs, but only for specific use cases.
This is the primary reason Apple selected Alphabet’s TPUs to train its Apple Intelligence model. Does one of the biggest players in the industry choosing purpose-built hardware over broader hardware spell the end for Nvidia?
Nvidia’s investment strategy depends on whether customers buy more GPUs
Part of the reason some investors (like myself) are hesitant to buy Nvidia stock right now is the extreme growth expectations baked into the company. Anyone buying stock now is assuming that demand for Nvidia’s GPUs will continue to grow significantly. However, they’re not considering the possibility that once developers get the hang of tuning their AI models a certain way, they might opt ​​to use purpose-built hardware like the TPU.
This could be a thesis-breaker for Nvidia, as Wall Street analysts expect Nvidia’s revenue to grow 98% this year to $110 billion and 36% next year to $151 billion. Should demand for the product decline, these forecasts could be jeopardized.
It’s not just Alphabet that creates its own design. Amazon (NASDAQ: AMZN) And Microsoft (NASDAQ: MSFT) Both have their own custom chips that are purpose-built for AI model training. None of these three companies sell these products directly to consumers. Instead, if customers want access to them, they have to rent them through one of their cloud computing offerings.
This is a better long-term business model than Nvidia’s, because once Nvidia sells its GPU, the only revenue it gets comes from customers who decide to upgrade or replace the unit after its useful life has expired. Cloud computing companies buy hardware and then rent power to customers on a recurring basis, increasing the value they can get out of a single unit.
Yet all three cloud giants’ data centers are filled to the brim with Nvidia’s GPUs, and they’re all buying more. So while there may be better ways to train AI models, many companies are still training on GPUs.
Time will tell whether this trend reverses and more companies train AI models like Apple did, or whether GPUs continue to dominate for broader use. But it’s a good point to keep in mind if you’re considering investing in Nvidia.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Apple Says No to Nvidia GPUs. Is This the End for Nvidia? was originally published by The Motley Fool
