These Words From Alphabet's Sundar Pichai May Eliminate One of Nvidia's Biggest Risks

Nvidia (NVDA 0.28%) has taken its spot center-stage in the high-growth artificial intelligence (AI) market thanks to its innovations. The company is the maker of the world's fastest graphics processing units (GPUs) -- and these chips power some of the most crucial of AI tasks, such as the training and inferencing of models. Along with this, Nvidia also has built an entire portfolio of AI products and services to serve customers along their AI path.

This AI focus has translated into several quarters of triple-digit earnings growth for Nvidia -- and a share price that has soared 2,400% over the past five years. Nvidia's customers include the world's biggest technology companies, from Alphabet (GOOG 1.46%) (GOOGL 1.50%) to Meta Platforms. These players are aggressively investing in AI and rely on Nvidia to help them build up their presence in this newish technology.

In spite of all of this, Nvidia faces one particular risk today. In fact, if this problem develops, Nvidia could say goodbye to the lion's share of its revenue. But here's some good news. Recent words from Alphabet chief Sundar Pichai may eliminate our need to worry about this risk. Let's find out more.

Nvidia's 80% market share

First, though, let's talk a bit more about Nvidia's market position right now. The company holds 80% of the AI chip market because of the top performance of its GPUs, and Nvidia aims to keep that going by updating its chips on an annual basis. Since its GPUs already outperform the chips of rivals, this focus on regular innovation should help it maintain that lead.

Nvidia recently launched its H200 chip and sales rapidly reached double-digit billions in Nvidia's fastest production ramp ever. This GPU offers inference performance that's twice as fast as its predecessor and as much as a 50% improvement in total cost of ownership for customers. On top of this, Nvidia also is launching its Blackwell architecture and chip this year -- a game-changing platform that's seeing "staggering" demand, according to the company.

But amid all of this success, the big risk is some of Nvidia's major customers may not have to rely on the top chip designer forever. Companies such as Alphabet, Meta, and Amazon have developed their own chips and continue to improve them. In fact, Alphabet is six-generations into its custom-built chip known as Trillium and even said during the latest earnings call that the chip continues to result in better and better performance. The problem for Nvidia is that these companies eventually may rely on their own products -- and buy fewer of Nvidia's.

"A comprehensive solution set"

Yet words from Pichai suggest that probably won't be the case, and instead, these chips may continue to be complementary. "We have a comprehensive solution set," Pichai said. "We have all the leading AI accelerators ... and we're investing in all of them."

These words suggest Alphabet isn't seeking to replace Nvidia's GPUs but instead just offer a broad range of options to Google Cloud customers. Amazon's AWS operates in a similar manner, selling its own lower-priced GPUs to cost-conscious customers while still offering Nvidia's premium products.

It's also important to note that Nvidia is so far ahead in terms of GPU technology that it would be extremely difficult for one of these players to develop an in-house chip that beats Nvidia's latest one -- especially considering Nvidia's aggressive focus on innovation. And since companies like Meta, which uses GPUs for the training of its large language models, aim to win in this AI race, it's likely they'll continue to pour investment into the top chip on the market.

This doesn't mean rivals won't also be successful in the AI chip market. With the general AI market forecast to climb from $200 billion today to $1 trillion by the end of the decade, there's plenty of business for several players. But, considering Nvidia's leadership and efforts to remain on top as well as these recent comments from Alphabet, investors shouldn't worry about the company losing business in the years to come.

Nvidia's top customers are likely to stick around for the long haul -- and that's great news for long-term investors in this AI powerhouse.