Nvidia's Dominance in AI Chip Market Raises Concerns Amid Tech Giants' Competition

Amid Nvidia And Other Chip Stock Surge, Expert Warns 'If Excitement And Investment In AI Slow, Chip Industry Growth Will Slow Too' - Alphabet (NASDAQ:GOOG), Alphabet (NASDAQ:GOOGL)

Nvidia Corporation NVDA has seen its stock prices more than double since the start of the year due to the boom in AI-related investments. However, experts warn of the cyclical nature of the semiconductor industry and potential slowdowns in the future. What Happened: Chris Miller, a history professor at The Fletcher School at Tufts University, explained that the semiconductor sector has always experienced ups and downs, Business Insider reported on Friday. He highlighted that chip giants like Nvidia and Taiwan Semiconductor Manufacturing Co Ltd. TSM have greatly benefited from the AI buildout, but this may not always be the case. The concept of a semiconductor supercycle refers to sustained periods of growth and increased demand that can last several years. "The boom in spending on AI infrastructure has been a major growth driver for the chip industry," Miller said. "If excitement and investment in AI slow, chip industry growth will slow, too." Despite the warnings, some believe it's too early to declare a new supercycle. Thomas Rupf, chief investment officer at private bank VP Bank Asia, and Josie Ananto, a principal at EY-Parthenon's strategy and transactions team, both see persistent demand and investment opportunities in the sector. See Also: Satya Nadella Says Microsoft's Copilot Drives 40% Of GitHub's Revenue Growth: We Are Also 'Enabling Anyone To Use Natural Language To Create Apps...' However, the success of Nvidia has attracted competition from big tech players like Meta META and Google by Alphabet GOOGL GOOG, and startups like Groq. This could pose a threat to Nvidia, which designs but doesn't manufacture its own chips. Despite the competition, Nvidia is not standing still. In May, Nvidia CEO Jensen Huang announced the company would release new chips on a "one-year rhythm" instead of its traditional two-year release cycle. Why It Matters: Nvidia's stock valuation saw a significant jump, adding an impressive $330 billion to its market cap in just one day. This surge broke its previous record of a $277 billion gain, driven by Microsoft's recent announcement of a significant rise in its AI-related spending for the fiscal year 2024, which is set to grow by 60% to $69 billion. This news led to a nearly 13% rise in Nvidia's stock price, bringing its market capitalization to a remarkable $2.88 trillion. As a result, Nvidia has become the third-most valuable company in the world, behind only Apple and Microsoft. However, the semiconductor rally has faltered in the second half of the year. The Invesco QQQ Trust Series QQQ, a fund that tracks the NASDAQ 100, is down more than 5% throughout the last month. In the last month, Dell's stock is down 25%, Nvidia's more than 15%, while AMD is down around 13%. Nvidia Corp has unveiled significant updates to its software suite, aiming to streamline the integration of generative artificial intelligence for various businesses. The new releases include what Nvidia calls NIMs, or Nvidia inference microservices, designed to handle the logistical challenges of deploying AI technologies such as chatbots and voice recognition. Read Next: Apple Q3 Earnings Beat Expectations, Tim Cook Highlights 'Breakthrough' AI Platform: Installed Base Of Devices Hits All-Time High, But China Revenue Falls Image via Shutterstock This story was generated using Benzinga Neuro and edited by Pooja Rajkumari Market News and Data brought to you by Benzinga APIs

Apple Just Sent a Major Warning to Nvidia Investors | The Motley Fool

Practically everyone building an artificial intelligence (AI) large language model relies on Nvidia (NVDA -6.67%) for its high-end graphics processing units (GPUs). Big tech companies like Alphabet, Microsoft, Amazon, Meta Platforms, and others have been committing billions of dollars to Nvidia just to get their hands on the next batch of chips. The company revealed its long-awaited AI features in early June. It's calling the system Apple Intelligence, which consists of multiple generative AI models fine-tuned for various tasks, such as writing, summarizing, image generation, and interacting with iPhone and Mac apps. But those models weren't trained using Nvidia GPUs. They weren't trained using GPUs at all. Apple used Google's Tensor Processing Units (TPUs) to train its Apple Foundation Models, which power Apple Intelligence. A TPU is a special type of computer chip called an application-specific integrated circuit, or ASIC. Unlike a GPU, an ASIC chip is relatively limited in what kind of processes it can run. But it runs those processes extremely efficiently. Apple used the fourth and fifth generations of Google's TPUs to train its foundation models. Google says the TPU v5p, released late last year, is 2.8 times faster than the fourth-generation design. And Google's TPU v4 was between 1.2 times and 1.7 times faster than the Nvidia A100. Some back-of-the-envelope math then puts the v5p chips on par with Nvidia's latest H100 chips. In May, Google introduced its sixth-generation TPU, which produces even more speed improvements. In other words, when it comes to training a foundation model for generative AI, Google's own designs appear to be just as good as Nvidia's latest hardware. More importantly, they're more energy- and cost-efficient than using a GPU. As a result, Apple can end up with a foundation model for Apple Intelligence at a fraction of the price it would've cost to use Nvidia's chips. Apple certainly isn't the only company using Google TPUs for training its AI, but the fact that one of the wealthiest companies in the world decided to go with TPUs over Nvidia should send a major warning to Nvidia investors. Nvidia relies on a small group of tech giants for a large part of its business. Google is one of its biggest customers despite the fact that it's spent a decade designing its own AI chips. Likewise, Nvidia's other biggest customers -- Microsoft, Amazon, and Meta -- are all designing their own custom silicon for training and running AI models. Alphabet CEO Sundar Pichai may have summarized the biggest reason these companies continue to purchase every chip they can from Nvidia on his company's second-quarter earnings call. "When we go through a curve like this, the risk of under-investing is dramatically greater than the risk of over-investing for us." In other words, the potential loss from not spending heavily on AI chips and data centers is far greater than the cost of spending. But ultimately, Google TPUs and other custom silicon may prove a more cost-effective way to continue scaling the AI businesses of these tech giants. And Apple's decision to use TPUs is a major testament to that. Customer concentration is a major risk for Nvidia. During Q1, two customers accounted for 24% of its total revenue. As these customers work to reduce their dependence on Nvidia, the chip designer could see its revenue growth slow significantly over the next few years. Considering the expectations for Nvidia are high, that makes the potential for more AI developers to use cost-effective ASICs instead of Nvidia GPUs a serious threat to the stock price. One bad quarter could send shares considerably lower. Even after the pullback in price, Nvidia shares trade for over 42 times forward earnings and an enterprise value-to-revenue multiple of around 34. Both are extremely high for a company of its size, and while it's managed to beat expectations amid the ongoing AI boom, the potential for a slowdown in sales and profits keeps getting stronger. Nvidia's AI dominance won't last forever, but investors are acting like it will, based on its current share price.

Big Tech's AI race has one main winner: Nvidia

It's Nvidia's market. Everyone else just lives in it -- though not nearly as well. The superstar chip maker hasn't participated in the latest round of earnings reports for the June quarter -- its announcement will come later, as its fiscal quarter just ended on July 28. But the most dominant news out of those reports over the last two weeks has been great news for Nvidia, as Amazon.com, Google, Microsoft and Meta Platforms have all reported significant jumps in capital spending that is mostly going toward data centres and Nvidia's artificial-intelligence systems which power those facilities. It is a lot of money. Combined capital spending for those four companies totaled $58.5 billion for the June quarter -- up 64% year over year and the biggest jump that group has seen on a combined basis since 2018, according to data compiled by The Wall Street Journal. The four also projected the elevated spending would continue into the rest of the year and likely into the next. Other numbers weren't quite as impressive. All four companies saw revenue growth decelerate from the March quarter. Meta still managed to solidly beat Wall Street's targets and added a strong forecast to the mix, which helped the stock gain nearly 5% Thursday. But Microsoft, Google-parent Alphabet and Amazon saw results in some key business units fall short. Amazon fared the worst in that regard, with its AWS cloud business the only segment to beat analysts' revenue targets for the quarter. The company also projected disappointing revenue and operating earnings for the September quarter in its latest report Thursday, sending the stock down more than 7% in after-hours trading. Microsoft and Alphabet shares also fell following their respective reports. Apple isn't running in quite the same AI spending race. But its results Thursday showed how the company also has a lot riding on its own adoption of generative AI. iPhone revenue slipped 1% year over year ahead of what is expected to be a big cycle for the pioneering smartphone, as Apple brings the new AI technology it previewed earlier this summer to its products. But that rollout will be slow, as the company has confirmed that not all the capabilities of its Apple Intelligence platform will be available when its new phones launch. The company said overall revenue growth for the September quarter would be about the same as the 5% growth reported for the June period. Apple's shares edged up slightly in after-hours trades Thursday. Strong AI spending should help Nvidia make its own ambitious numbers when it reports results at the end of the month. Analysts are expecting nearly $25 billion in data center revenue for the July quarter -- about what that business was generating annually a year ago. But the latest results won't quell the growing concern investors have with the pace of AI spending among the world's largest tech giants -- and how it will eventually pay off. Amazon Chief Executive Andy Jassy said on the company's earnings call Thursday that Amazon is investing "a significant amount" in AI. But he also noted the company's long history of building up its cloud computing business to meet demand without ending up with costly excess capacity. "We have a lot of demand right now," he said on the call. That demand isn't helping everyone. Intel posted disappointing second-quarter results Thursday that included a 3% drop in revenue for its data center and AI segment, with adjusted per-share earnings about 80% below Wall Street's projections. The company's historic strength in traditional server computing chips has become a weak point, as tech giants focus their spending on Nvidia's AI systems. Intel now plans to lay off more than 15% of its workforce, and the company said Thursday it is suspending the dividend it has paid since at least 1992, according to data from S&P Global Market Intelligence. AI's wealth is far from being spread to all.