There’s no doubt about that Nvidia(NASDAQ: NVDA) has been the main beneficiary of recent advances in artificial intelligence (AI). The company’s graphics processing units (GPUs) quickly became the gold standard for generative AI, capturing a whopping 92% of the data center GPU market, according to market researcher IoT Analytics. Nvidia has parlayed that dominance into five consecutive quarters of triple-digit annualized revenue and profit growth.
Many competitors have tried to keep up with the company’s relentless pace of innovation, but none have succeeded. Just this year, Nvidia revised the frequency of product releases from two years to every year, making it even harder for rivals to compete.
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However, a recent entrant into the AI market is making waves and could be the first real competition Nvidia faces.
Image source: Getty Images.
Cerebras Systems is an AI company founded in 2016 and there have recently been rumors of an IPO on the horizon. The company believes that “AI is the most transformative technology of our generation.”
Cerebras developed the Wafer-Scale Engine (WSE) – a giant semiconductor that takes a different approach to accelerate AI. The WSE has 4 trillion transistors and integrates 900,000 computing cores and 44 gigabytes of Static Random Access Memory (SRAM) into the chip itself.
Cerebras claims its unique construction reduces latency – or the delay resulting from data transmission – making the third-generation WSE “the fastest commercially available AI training and inference solution in the world.” In August, Cerebras launched what it called “the world’s fastest AI inference,” which it claims is 20 times faster than Nvidia’s GPU-based solutions at a fraction of the cost.
In a press release issued last week, Cerebras updated its claims, saying it has tripled its “inference performance.” [a] new all-time record.” The company said its tests with Llama 3.2 – its newly upgraded generative AI model Metaplatforms — were “16x faster than any known GPU solution, and 68x faster than hyperscale clouds.”
While Nvidia and Cerebras’ AI-focused efforts show some overlap, it’s important to take a step back and put the rivalry in context.
Nvidia’s chips have a 25-year track record and have stood the test of time. These GPUs dominate a variety of tasks and markets, including video game graphics cards, data centers, earlier branches of AI, and – most recently – generative AI.
Beyond the processors themselves, Nvidia has taken a more holistic approach, creating software, switches, links (and even entire plug-and-play systems) that work together to accelerate the performance of its processors. Furthermore, Nvidia is deeply entrenched in the business world, while Cerebras has been a relative Johnny-come-lately. Companies can effortlessly adopt Nvidia’s AI solutions, which are relatively easy to implement.
This poses a challenge for Cerebras because potential customers will have to redesign their systems to integrate its technology. The switching costs involved could be significant, which could provide a competitive advantage for Nvidia. Moreover, companies are less eager to spend a lot of money on technology that is unproven and has not yet stood the test of time.
Finally, there is the issue of customer breadth. Nvidia counts many of the world’s best-known companies as customers, although it gets an estimated 46% of its revenue from just four customers. While Nvidia doesn’t know who they are, it is widely believed to be the case Alphabet, AmazonMetaplatforms, and Microsoft.
Cerebras, on the other hand, generated 83% of its 2023 revenue from just one customer – G42 in the United Arab Emirates – which represented 87% of its revenue during the first six months of this year. Any change of direction or disagreement between the two companies could put Cerebras in dire straits, putting its other customers – however few they may be – in a difficult position.
Perhaps more worrying is the fact that US lawmakers have expressed concerns about the G42, citing the company’s “extensive business relationships with Chinese military companies, state-owned enterprises and the People’s Republic of China.” [People’s Republic of China] intelligence agencies.” This history and concerns from U.S. regulators could limit Cerebras’ business dealings with the G42 and affect its future prospects.
To be clear, Cerebras offers a unique solution that represents a new level of competition for Nvidia that its other rivals have yet to reach – so it’s definitely worth keeping an eye on. However, the company will have to overcome many hurdles before it can become a success significant challenge for Nvidia.
Cerebras has made a number of claims that have yet to be put to the test. Ultimately, it will be customer demand that will decide whether Cerebras has what it takes to take on Nvidia.
Until then, however, Nvidia remains the king of the AI revolution. Although it is currently selling about 34 times what it will next year, Nvidia’s long track record of success, industry dominance and entrenched position makes it the name to beat.
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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, a director at Alphabet, 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. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Nvidia is the undisputed king of the artificial intelligence (AI) revolution. Has the chipmaker finally met its match? was originally published by The Motley Fool
