Nvidia (NVDA) stock fell as much as 6.5% on Tuesday after a report that the AI chipmaker could soon see greater competition from its own customer, Google (GOOG, GOOGL).
The Information reported on Monday that Google is in talks with Meta (META) for the Facebook parent to spend billions of dollars to use its AI chips in data centers in 2027.
This would represent a big change in Google’s current chip business, which sees the tech giant rent access to its chips, called tensor processing units (TPUs), to AI developers through Google Cloud. This means the chips are confined to Google’s own data centers, not sold externally as suggested by The Information’s report.
The Information also said Google is pitching its other cloud customers to sell them TPUs, in a move the company claims could grab as much as 10% of Nvidia’s annual revenue. Shares of Nvidia rival Advanced Micro Devices (AMD) also fell more than 8% following the report.
The move is part of a growing dynamic in which Nvidia’s biggest customers are becoming one of its largest competitive threats.
In addition to Google, Amazon (AMZN) and Microsoft (MSFT) have developed their own AI chips. Amazon recently completed a massive data center project, renting out half a million of its custom AI chips to one of the leading AI developers, Anthropic (ANTH.PVT). Google recently announced a big deal with Anthropic, and OpenAI (OPAI.PVT) reportedly tested the company’s AI chips this summer.
Speculation has grown in recent months that Google is expanding its AI chip business to more directly compete with Nvidia.
Investing firm DA Davidson published a note in September stating that “notable frontier AI labs” had shown “considerable interest” in purchasing Google’s TPUs. The firm estimated that Google’s TPU business and AI segment, DeepMind, could be worth $900 billion.
Following the latest news, Nvidia’s stock drop reversed a gain from Monday as tech stocks had begun to recover from a rout. Nvidia and other Big Tech stocks have come under pressure in recent months as concerns have escalated over the AI bubble.
Nvidia has been subject to criticism over circular AI deals — as the leading AI chipmaker has invested in its own customers — with the famed “Big Short” investor Michael Burry recently betting on the company’s declineand claiming the AI market is like the dot-com bubble.
In a memo sent to Wall Street analysts over the weekend, however, the company sought to dispel some of these concerns.
“NVIDIA is completely transparent about strategic investments … the companies in NVIDIA’s strategic investment portfolio are growing their own revenues rapidly, indicating a path to profitability and strong underlying customer demand for AI applications,” the company said in the memo obtained by Yahoo Finance.
