Nvidia Dominates Artificial Intelligence Chip Market, But Apple Has Been Protecting Supply From Another Tech Giant | The Motley Fool

Nvidia (NVDA Image -0.21%) has been a hot commodity in the last few years, mainly because of the important role it plays in artificial intelligence (AI). The company’s AI chips are important for companies that are developing AI models. And Nvidia has a commanding 80% market share when it comes to AI chips. That’s part of the reason why investors have stayed in the stock — it’s arguably a stock poised to benefit from the growing demand for AI.

But given how lucrative the opportunities are in AI, it’s only a matter of time before more competitors emerge and fight for market share. apple (AAPL 1.37%) has recently turned to one of its most unlikely competitors to source chips for its new AI-powered iPhones.

Apple bought chips from Alphabet

One of the companies that is making its own chips is Alphabet (GOOG 0.95%) (GOOGL 1.01%). And Apple is training its new AI system, called “Apple Intelligence,” using Alphabet’s custom chips, according to the research paper. The company used two versions of Google’s tensor processing unit to develop its AI models, which give iPhone users access to AI features that generate, including advanced writing tools, the ability to generate images, and the Siri assistant with “new powers.”

Could there be more competition on the way?

Alphabet is a strong competitor for Nvidia to worry about. The company has many resources to work with. Last year, Alphabet generated more than $69 billion in free cash flow. It has been investing in its AI chatbot Gemini, and the AI ​​chips could give it another growth opportunity to raise capital from it.

Courts recently found that the company’s search engine, Google, had illegal controls. And depending on what the results of that acquisition are, Alfabeta could soon see a big incentive to find a new growth opportunity, as the decision could have a negative impact on the main part of its business. .

Besides Alphabet, however, there are other competitors that Nvidia may worry about. Meta Platforms it has always worked with its own AI chip, as it did Amazon. And investors should not forget about me AMDwhich is Nvidia’s traditional enemy. Although it is late to the game, AMD has made it clear that AI is a business priority, and it could take away a large share of the market 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 works to improve and come out with advanced shifts to ensure it stays on top. But maintaining such a large market share can be very difficult, especially with so many big tech companies with deep pockets to compete with. They will not ignore such a huge opportunity in AI chips.

The company’s revenue took off last year, and Nvidia’s growth rate in recent quarters has been over 200%. Those types of calculations, while very impressive, are also very difficult to maintain. At some point, Nvidia’s growth rate will begin to decline, especially if more competition appears in the field. And its high-priced chips may also need to come down in price if that’s the case, which could lead to slower growth rates and smaller profit margins than those 50%-plus margins. it has been too late.

Is Nvidia stock still being bought?

Nvidia stock has been giving back 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 will be able to do so overnight.

Nvidia is still in a good position to continue to grow, but I would expect its growth rate and margins to slow down a bit in the coming quarters, especially as companies may limit their use of AI with the cause of the Great Depression. Nvidia stock may struggle in the near term, but as long as you’re willing to hold on for the long term, it’s still a good buy. However, you should be prepared for the challenges ahead.

Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of CEO of Meta Platforms Mark Zuckerberg, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski does not have any position in the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, and Nvidia. The Motley Fool has a publicity strategy.