Nvidia (NVDA) had the kind of year most companies can only dream of.
Its revenue and stock price increased thanks to subtle investments in artificial intelligence technologies that are paying off big on the back of the productive AI wave.
That's not all. He repeatedly swaps places with Apple (AAPL) as the largest publicly traded company in the world by market cap, topping the $3 trillion mark. CEO Jensen Huang has become one of the most popular executives in Silicon Valley, meeting everyone from fellow tech luminaries to world leaders and then some.
And there is more to come. The company is ramping up production of its powerful Blackwell chip for AI applications and expects to ship a billion dollars worth of the hardware in the fourth quarter alone, with much more expected in the coming year.
“NVIDIA really has the (hardware and software) for the era of AI computing,” Futurum Group CEO Daniel Newman told Yahoo Finance. “It's all connected inside the (server) rack, outside the (server) rack, and then the software is very well liked within the developer communities .”
But the competition is not sitting idle.
Companies like AMD (AMD) is fishing to poach Nvidia customers and cutting into its estimated 80% to 90% market share. Even Nvidia's own customers are working on chips meant to cut down on their reliance on the graphics giant's semiconductors.
And Wall Street is joining.
Broadcom shares (AVGO), which works with companies such as Google (GOOG, GOOGLE) to design AI chips, is up 113% year to date and shot 44% in the past month alone after CEO Hock Tan said AI could represent a $60 billion to $90 billion opportunity for the company in 2027 only.
Still, taking on Nvidia will be a tough task for any company. And dethroning him as the AI king, at least in 2025, will be nearly impossible.
Nvidia seized a first-mover advantage in the AI market thanks to early investments in AI software that unlocked its graphics chips for use as high-powered processors. And it has managed to hold on to that lead in the space thanks to continued advances in its hardware, as well as its Cuda software that allows developers to build apps for its chips.
Because of that, so-called hyperscalers, giant cloud computing providers including Microsoft (MSFT), Google Alphabet, Amazon (AMZN), Meta (META), and others continue to plow cash into buying as many Nvidia chips as possible. In its most recent quarter, Nvidia reported total revenue of $35.1 billion. Of that, $30.8 billion, or 87%, came from its data center business.
“Everyone wants to build and train these massive models, and the most efficient way to do that is with CUDA software and Nvidia hardware,” TECHnalysis Research president and chief analyst Bob O'Donnell told Yahoo Finance.
Top: CEO Jensen Huang speaks during the Nvidia GTC keynote in San Jose, Calif., Monday, March 18, 2024. (AP Photo/Eric Risberg) ·THE SOCIAL PRESS
Nvidia is expected to continue to power the majority of the AI industry in 2025 as well. The company's Blackwell chip, the successor to its popular Hopper series of processors needed to power AI applications, is in production – and its customers, such as Amazon, are already adding new cooling capabilities to their data centers to handle the extreme heat which the processors produce.
“I don't know what the current backlog is (for Nvidia chips), but if it's not a year, it's close to a year,” O'Donnell said. “So, they're pretty much sold out for most everything they're probably going to do next year already.”
With hyperscalers calling for an increase or at least the same level of capital expenditure in 2025 as in 2024, you can expect a portion of that to eventually go towards buying Blackwell chips.
While Nvidia will retain control of the AI crown, there is no shortage of challengers looking to take its throne. AMD and Intel (INTC) are the main competitors among chip makers, and both have products on the market. AMD's MI300X chip line is designed to take on Nvidia's H100 Hopper chips, while Intel has its Gaudi 3 processor.
AMD is better positioned to steal market share from Nvidia, though, as Intel continues to struggle amid its turnaround efforts and looking for a new CEO. But even AMD is having a tough time cracking Nvidia's lead.
Facing risks? Nvidia CEO Jensen Huang in San Jose, California last March. (AP Photo/Eric Risberg) ·THE SOCIAL PRESS
“What AMD needs to do is make software really usable, build the systems where there's more demand … with developers, and ultimately that could create more sell-through,” Newman said. “Because these cloud providers are going to sell what their customers are asking for.”
It's not just AMD and Intel, though. Nvidia customers are increasingly developing and pushing their own AI chips. Google has its Broadcom-based tensor processing unit chips (TPUs), while Amazon (AMZN) has a Trainium 2 processor and Microsoft (MSFT) has its Maia 100 accelerator.
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There is also concern that the switch to “inventing AI models” will reduce the need for powerful Nvidia chips.
Tech companies develop AI models by training them on massive amounts of data, otherwise referred to as the training process. Training requires extremely powerful chips and a lot of energy. Interpreting, or implementing those AI models, is less resource and power intensive. As aggregation becomes a bigger part of AI workloads, the thinking goes, companies will back away from needing to buy so many Nvidia chips.
Huang has said he is ready for this, explaining at various events that Nvidia chips are just as good at inferring as they are at training.
Even if Nvidia's market share is slipping, it doesn't necessarily mean that its business will do worse than before.
“This is definitely a case of lifting all boats,” Newman said. “So even with much stronger competition, which I think they will certainly have, that does not mean they are going to fail. This is people building a bigger pie.”
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Email Daniel Howley at dowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
