Can NVIDIA's AI Chip Dominance Continue?
Shares of NVIDIA NVDA, arguably the most important company in the world today, have surged more than 135% this year, following a nearly 240% increase in 2023.
The company reported impressive results last week, exceeding sky high expectations as demand for its AI chips continues to grow exponentially.
Deep-pocketed clients, particularly tech giants Microsoft MSFT, Amazon AMZN and Alphabet GOOGL as well as well-funded AI startups, are scrambling for NVIDIA's GPUs as the AI race heats up.
NVIDIA currently controls over 80% of the market for cutting-edge chips used to train and run large language models. The biggest question for investors now is whether this dominance can be sustained and for how long.
While NVIDIA's GPUs are unmatched for training AI models, chips from competitors like Intel and AMD can be used for inference after models are trained.
NVIDIA appears to have a strong position in the inference market as well, but it could face increased competition in the coming years. Additionally, large technology companies are designing their own chips, potentially reducing their reliance on NVIDIA.
NVIDIA's chips are already significantly ahead of the competition, with the company planning to launch even more improved chips annually.
What truly sets NVIDIA apart is its comprehensive AI ecosystem, which includes its CUDA software and leading networking technology.
NVIDIA has invested heavily in CUDA for over almost two decades, and boasts the best chip networking technology thanks to its acquisition of Mellanox in 2019.
Any rival aiming to gain dominance in the industry will need to develop best-in-class hardware, software, and networking technology, a significant challenge.
Furthermore, NVIDIA has access to a large share of TSMC's TSM advanced manufacturing capabilities, making it difficult for competitors to secure similar allocations.
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