Reports indicate that Google and Meta are in talks over a multi-billion-dollar artificial intelligence chip deal, sending Nvidia's stock price lower on the news
NVIDIA (NVDA) shares rose as much as 5% in early trading Tuesday after reports that the artificial intelligence chipmaker may soon face increased competition from its customer Google (GOOG, GOOGL).
According to a Monday report by The Information, Google is in talks with Meta (META), Facebook's parent company, to spend billions of dollars by 2027 on Meta's AI chips for its data centers.
This would mark a major shift in Google's current chip business. Currently, the tech giant leases its TPU (Tensor Processing Unit) chips to AI developers through Google Cloud. This means these chips are confined to Google's own data centers and are not sold externally, contrary to reports by The Information.
The report also indicates Google is now marketing TPUs to its other cloud customers, with the company claiming this move could potentially capture up to 10% of Nvidia's annual revenue. Following this news, shares of Nvidia's competitor AMD (AMD) fell by more than 8%.
This move reflects a growing trend where Nvidia's largest customers are becoming some of its biggest competitive threats.
Beyond Google, Amazon (AMZN) and Microsoft (MSFT) have also developed their own AI chips. Amazon recently completed a major data center project, leasing its custom-built 500,000 AI chips to Anthropic, one of the leading AI developers. Google recently announced a major partnership with Anthropic (ANTH.PVT), while OpenAI (OPAI.PVT) reportedly tested the company's AI chips this summer.
In recent months, speculation has grown that Google is expanding its artificial intelligence chip business to compete more directly with Nvidia.
In a September report, investment firm DA Davidson noted that “several prominent cutting-edge AI labs” have shown “strong interest” in acquiring Google's TPUs. The firm estimates Google's TPU business and its AI division DeepMind could be worth as much as $90 billion.
NVIDIA's stock declined on the latest news, erasing earlier gains in tech shares on Monday as the sector began rebounding from a steep decline. Both NVIDIA and other major tech stocks have faced pressure in recent months amid growing concerns about an AI bubble.
NVIDIA has faced criticism for its circular AI transactions the leading AI chipmaker invests in its own customers while famed “big short” investor Michael Burry recently bet on the company's decline, claiming the AI market resembles the dot com bubble.
However, the company sought to dispel some of these concerns in a memo sent to Wall Street analysts over the weekend.
“NVIDIA is fully transparent about its strategic investments... Companies in NVIDIA's strategic portfolio are rapidly growing their own revenues, indicating they are on a path to profitability and demonstrating strong underlying customer demand for AI applications,” the company stated in a memo obtained by Yahoo Finance.
The company also specifically rebutted critics who have drawn parallels to past accounting scandals, writing: “NVIDIA bears no resemblance to historical accounting frauds because our underlying business is economically sound, our reporting is fully transparent, and we place a premium on our reputation for integrity.”
NVIDIA elaborated on why it believes itself fundamentally different from companies like Enron, WorldCom, or Lucent.