Nvidia (NASDAQ: NVDA) has been soaring since the beginning of 2023, riding high on the tidal wave of demand for artificial intelligence (AI) computing power. However, the tech giant Apple recently delivered a significant blow to Nvidia by opting not to utilize Nvidia GPUs (graphics processing units) in its AI model creation. Could this decision spell trouble for Nvidia’s GPU dominance?
GPU Dominance in AI Model Training
Nvidia’s GPUs have emerged as the go-to choice for running AI workloads due to their outstanding performance and industry-leading software that maximizes their potential. These GPUs excel at parallel computing, making them ideal for handling the myriad calculations involved in AI work, unlike traditional PC central processing units (CPUs). Furthermore, Nvidia GPUs find application in diverse fields such as cryptocurrency mining, simulations, and drug discovery.
Despite their widespread use, Nvidia GPUs are not purpose-built for AI computations, leaving room for alternative specialized hardware. One such competitor is Alphabet’s (NASDAQ: GOOG) tensor processing unit (TPU), designed explicitly for resource-intensive AI computations. While TPUs outperform Nvidia’s GPUs in certain scenarios, their capabilities are limited to specific use cases.
Apple’s selection of Alphabet’s TPUs over Nvidia’s GPUs for training its Apple Intelligence model underscores a shift towards purpose-built hardware tailored for specific tasks, potentially signaling a turning point for Nvidia in the AI market.
Nvidia’s Revenue Projection Vulnerabilities
Investor skepticism towards Nvidia stems from the astronomical growth expectations embedded in the company’s stock price. The current valuation assumes a continuous surge in demand for Nvidia’s GPUs. However, the rise of purpose-built hardware like TPUs presents a formidable challenge to Nvidia’s revenue projections.
Wall Street analysts anticipate a staggering 98% revenue increase for Nvidia this year, reaching $110 billion, followed by a 36% growth to $151 billion next year. Should demand for Nvidia’s GPUs wane in favor of specialized hardware, these ambitious forecasts could be at risk.
Moreover, tech titans such as Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) have developed their custom chips optimized for AI model training, available through their cloud computing services. This business model affords greater revenue potential than Nvidia’s traditional one-time sales approach, as cloud companies generate recurring income through hardware rentals.
Despite the advent of purpose-built alternatives, cloud giants continue to amass Nvidia GPUs in their data centers, indicating ongoing demand for GPU-based AI model training. The future balance between specialized hardware adoption and GPU dominance remains uncertain, posing a crucial consideration for potential Nvidia investors.
Conclusion
As the landscape of AI model training evolves, evidenced by Apple’s departure from Nvidia’s GPUs, Nvidia is at a pivotal juncture. The company’s growth trajectory hinges on sustaining GPU demand amidst the rise of purpose-built hardware solutions. Whether Nvidia can adapt to this changing environment and retain its market position remains to be seen, making it a compelling watch for investors eyeing the tech sector’s future.