Two of Nvidia’s biggest customers might be turning into its biggest threat.
For three years, Nvidia’s stock has defied gravity on the premise that the AI industry needs its chips. On Wednesday, when Google and Amazon reported their Q1 earnings, both signaled ambitions to sell their own custom AI chips directly to customers.
So far, Google’s TPUs and Amazon’s Trainium chips have only been available through Google and Amazon’s cloud services. Customers can pay to use them, but they don’t own them.
Nvidia is the undisputed leader in AI chips right now. While that shows no sign of stopping anytime soon, recent remarks from Google and Amazon suggest they are ready to challenge Nvidia’s throne.
Andy Jassy, the CEO of Amazon, laid down the gauntlet to Nvidia in his annual letter to shareholders earlier this month.
“Virtually all AI thus far has been done on Nvidia chips, but a new shift has started,” Jassy wrote, adding that it’s “quite possible” that Amazon could start selling its chips directly to customers.
He put a timeline on this plan on the company’s Wednesday earnings call, saying “there’s a good chance” Amazon will start offering full racks of Trainium chips beyond its own cloud “over the next couple of years.”
Google gave an even stronger commitment — and a nearer timeline.
On Wednesday, Google CEO Sundar Pichai publicly said for the first time that the company plans to deliver TPU chips to a “select group of customers” in their own data centers this year, but said the “vast majority” of revenues from those sales won’t be realized until 2027.
Pichai said there was a big opportunity for Google’s semiconductor business, which would also help fund the next generation of chips. That flywheel could create a mammoth business for Google. Morgan Stanley said in a December research note that selling 500,000 TPU chips could add roughly $13 billion in revenue to Google’s balance sheet in 2027.
The company said in its 10-Q filing that it had so far signed a “limited number of agreements” to supply TPUs to customers.
It’s also where things could get awkward. Google and Amazon are also big customers of Nvidia. They purchase Nvidia’s chips to lease to their customers in their own data centers. Amazon and Google have both said that they will continue to work with Nvidia.
Nvidia shares were down more thean 4% on Thursday. The company didn’t immediately respond to a Business Insider request for comment.
‘Concerned but not worried’
Breaking into Nvidia’s chip dominance will not be easy, analysts told Business Insider.
“Nvidia should be concerned but not worried,” said Alvin Nguyen, a senior analyst at Forrester. Nvidia has built a strong ecosystem of hardware, software, and support that has made it easy for customers to choose them, he said.
“Selling products is very different than access to them,” he said, adding that Amazon and Google would need to provide services like education and support to enterprises looking to buy their chips.
Google and Amazon’s chip racks are also “very bespoke and proprietary” and customized for their own respective data centers, said Patrick Moorhead, CEO and chief analyst of Moor Insights & Strategy. That poses a challenge for reaching mass adoption, he said.
Plus, the chip market isn’t a zero-sum game. AI companies are increasingly diversifying and using chips from multiple suppliers simultaneously. OpenAI, for example, has chip deals with Nvidia, AMD, and Broadcom, among others.
However, custom silicon is becoming an “increasingly important part of the AI story” for Google and Amazon, Bernstein analyst Mark Shmulik wrote in a note on Thursday. Both companies are pitching their chips as being more cost-effective than Nvidia’s.
That opportunity is also opening up as the needs of the AI industry shifts. Earlier this month, Google announced a new TPU chip specifically for inference — the process of running the models once they’re trained — which is becoming more critical as more companies bring AI agents online.
Beatriz Valle, a senior analyst for enterprise technology & services at GlobalData, called the decision by Google and Amazon an “extraordinary move” that will diversify the chip sector — and reduce cloud providers’ dependence on Nvidia chips.
“This process will take years but it is irreversible now,” she said.
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