Nvidia (NASDAQ: NVDA) has been a red-hot buy in recent years, largely because of the key role it plays in artificial intelligence (AI). The company’s AI chips are crucial to companies developing AI models. And Nvidia has a dominant 80% market share when it comes to AI chips. That’s partly why investors have remained bullish on the stock — it’s arguably the best-positioned stock to benefit from the growing demand for AI.
But given how lucrative the AI opportunity is, it’s only a matter of time before more competitors emerge to vie for market share. Apple (NASDAQ: AAPL) recently turned to one of those unexpected competitors to source chips for its new AI-powered iPhones.
Apple has bought chips from Alphabet
One of the companies developing its own chips is Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)And Apple is training its new AI system, dubbed “Apple Intelligence,” using Alphabet’s custom chips, according to a research paper. The company used two versions of Google’s tensor processing unit to develop its AI models, which will give iPhone users access to generative AI features including advanced writing tools, the ability to generate images and a Siri assistant with “brand new superpowers.”
Is more competition on the way?
Alphabet is a potentially powerful competitor that Nvidia should be concerned about. The company has plenty of resources to work with. Last year, Alphabet generated more than $69 billion in free cash flow. It has invested in its AI chatbot Gemini, and AI chips could give it another growth opportunity to pour money into.
The courts recently found that the company’s search engine, Google, has an illegal monopoly. And depending on the fallout from that finding, Alphabet could soon see a huge incentive to find a new growth opportunity to pursue, as the ruling could have a detrimental effect on a key part of its business.
Besides Alphabet, there are other competitors that Nvidia has to worry about. Meta platforms has been working on its own AI chip, just like AmazonAnd investors shouldn’t forget either AMDwhich is a more traditional rival to Nvidia. While it’s late to the game, AMD has made it clear that AI is a big priority for the company, and it could also take significant market share away from Nvidia in the future.
Should Nvidia Investors Be Worried?
Nvidia has generated incredible profits thanks to its dominance in the AI chip space. And it’s working to innovate and release more advanced chips to ensure it stays on top. But maintaining such a large market share can be incredibly difficult, especially with so many large tech companies with deep pockets to compete with. They’re not going to ignore such a massive opportunity in AI chips.
The company’s revenue has been skyrocketing over the past year, with Nvidia’s growth rate in recent quarters exceeding 200%. While impressive, such numbers are also extremely difficult to maintain. At some point, Nvidia’s growth rate is bound to slow, especially as more competition enters the space. And its expensive chips may have to come down in price as well when that happens, which could lead to both slower growth and smaller profit margins than the 50%-plus margins it has been averaging lately.
Is Nvidia Stock Still a Bargain?
Nvidia’s stock has given back some gains in recent weeks, but it’s still a top company to invest in if you want exposure to the red-hot AI market. While other companies may try to take market share from Nvidia, that doesn’t mean they can do it overnight.
Nvidia is still in a great position to continue growing, but I expect growth rates and margins to decline somewhat in future quarters, especially as companies potentially cut back on AI spending amid a potential economic slowdown. Nvidia stock may struggle in the short term, but as long as you’re willing to hold for the long term, it could still be a good buy. Just brace yourself for some challenges ahead.
Should You Invest $1,000 in Nvidia Now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Nvidia dominates the artificial intelligence chip market, but Apple has secured supplies from another tech giant was originally published by The Motley Fool
