Nvidia (NASDAQ: NVDA) is in a position that any chip designer would envy. The company dominates the fast-growing artificial intelligence (AI) chip market, and this leadership has helped Nvidia deliver triple-digit revenue growth in recent quarters, along with rising stock performance. Over the past five years, the stock is up a whopping 2,600%, and this year it is keeping up the momentum, on its way to a gain of more than 180%.
This top chip company has its share of competition, from other chip designers such as Advanced micro devices And Intel to its own customers – thanks to their internal chip projects. For example, customers, including Metaplatforms And Amazonhave built their own AI chips to complement their line of Nvidia graphics processing units (GPUs). Nvidia also faces emerging players such as Cerebras Systems, a company that plans to launch an initial public offering (IPO) soon.
Do you miss the morning spoon? Wake up with Breakfast news in your inbox every market day. Register for free »
This list of competitors may sound worrisome to Nvidia and its investors, but Nvidia’s boss Jensen Huang recently said something that sounds like bad news for rivals.
First, let’s take a look at where Nvidia stands today. The company, which initially focused on serving the video game community with its GPUs, has expanded the GPU into many other areas today. And the place where it stands out is in AI. Customers are flocking to Nvidia for GPUs to power their data centers and projects for one simple reason: its GPUs are the most powerful available.
This year the company launched the H200, a chip that delivers inference performance twice as fast as its predecessor, and quickly reached double-digit billion-dollar sales. Nvidia recently said that the H200 represents its fastest production increase yet.
Now Nvidia is heading towards an even bigger launch: the release of its Blackwell architecture and the most powerful chip ever. The company aims to ramp up production in the current quarter and generate several billion dollars in revenue from the platform almost immediately.
As mentioned, there is a lot of competition in the AI chip market, and these competitors’ products have a lower price tag than Nvidia’s. Amazon Web Services, the cloud computing arm of Amazon, has even developed an AI chip called Trainium with the budget-conscious customer in mind. A concern among some investors is that this quest for savings could push customers away from Nvidia and favor other players.
But Chief Executive Officer Jensen Huang said something during the company’s recent earnings call that shows where Nvidia stands when it comes to the costs of its customers – and this could be seen as very bad news for rivals.
Huang says that even in the largest data centers, power is limited, so performance per watt is critical. “Because our performance per watt is so good compared to anything else, we generate the largest possible revenue for our customers,” says Huang.
This means that even if customers spend more upfront on Nvidia’s GPUs, the high performance will translate into higher revenue. This could offset the initial investment and make the Nvidia product the best bargain for a customer over time. When potential customers consider their AI options, this point will come up – and it may push some to choose Nvidia.
Does this mean investors in Nvidia’s rivals 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 this decade, there is a need for more than one supplier of AI accelerators and related products so rivals can succeed without dethroning Nvidia .
However, Nvidia investors should view Huang’s comment as fantastic news, as it suggests that Nvidia is overcoming one of its biggest risks – and is here to stay as the leader in AI chips.
Consider the following before buying shares in Nvidia:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $889,433!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Intel, Meta Platforms and Nvidia. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Jensen Huang just announced some bad news for Nvidia’s rivals, originally published by The Motley Fool
