At Forrester, we are industry analysts, not financial analysts, but in our profession, we need to look at tech company finances as part of our vendor viability assessment. The company we’ll highlight today is NVIDIA.
NVIDIA Is On A Roll
NVIDIA is a great company led by the brilliant and charismatic CEO Jensen Huang. You’d be hard-pressed to find anything the company and its people are doing wrong. It just released its fiscal Q3 2024 quarterly earnings, which were expectedly impressive. The company is among the hottest in the world. Its GPUs have evolved from cool toys for gamers to the underlying powerhouses of the current AI revolution. It built a robust and broad partner ecosystem centered on its “moat” of software that makes its GPUs the overwhelming choice for AI applications. To say that it’s on a roll is an understatement. In short, NVIDIA is a juggernaut — and deservedly so. In a word association game, when I say “AI,” you would probably respond “NVIDIA,” and that’s how it’s been for a while.
NVIDIA’s Competition Is Getting Intense
When you’re king of the hill, everyone aims their competitive arsenal at you, however. NVIDIA’s glorious rise is coming to an end. It will remain king of AI infrastructure for the foreseeable future, but its near-exclusive stranglehold is over. Other chipmakers like AMD and Intel have increasingly competitive products, and they are building their own ecosystems to support their overall offerings.
I recently appeared on Bloomberg TV’s “Daybreak Asia” program. When asked what company I thought could challenge NVIDIA, I said Intel and AMD. I stand by that, but I wasn’t thinking deeply enough on the spot. Traditional chipmakers are not the only competitive threats. The US-China trade war is also forcing a formidable market shift. China was once a big market for NVIDIA and other US-based chipmakers. It is now largely off-limits. That all said, I see an even bigger threat on the horizon: DIY.
Hyperscale cloud providers started the do-it-yourself (DIY) movement a few years ago, developing their own custom processors. Google’s Tensor Processing Unit and AWS’s Trainium are two examples. Microsoft just jumped onto the field of play, as well. Chinese tech powers such as Huawei and Baidu are also developing their own processors. As businesses embrace these cloud offerings, demand for NVIDIA instances diminishes in a relative sense. We still expect demand for NVIDIA to grow, but other chipmakers and the DIY movement suggest that NVIDIA’s share will shrink. NVDA stock just hit an all-time high. Again, we’re not money people, but its $1.2 trillion valuation seems irrational. It sure feels like the NVIDIA bubble will burst.
You Might Be NVIDIA’s Future Competition
The DIY phenomenon will expand beyond companies we think of as tech companies. Improved chip design tooling from companies such as Cadence Design Systems and Synopsys and expanded manufacturing capabilities from fabs like TSMC, Intel, and GlobalFoundries simplify the concept-to-chip cycle for everyone. It is still a pursuit limited to skilled semiconductor engineers, but design automation tools will evolve to democratize the chip design process. Generative AI built on TuringBot concepts will accelerate this movement. By the latter half of this decade, any company will be able to design custom silicon optimized for their own needs. You won’t need a Ph.D. in electrical engineering, and you won’t need to depend on chip fabs churning out your chips in mass quantities. Small batches will be feasible, and programmable processors evolved from FPGAs will be commonplace.
Manufacturing is not design. Design will get easier, but the fabrication of the actual chips is getting more complicated. Most of the big names in semiconductors don’t even make their own physical chips. NVIDIA, AMD, Qualcomm, Apple, and plenty more are “fabless,” farming out the manufacturing to the established fabs. All DIY chips will be fabless. The fab companies want to make your chips.
NVIDIA will remain a prominent power that will potentially benefit handsomely from the DIY movement, but it’s about to get a lot more competitors and frenemies — big and small. Will you be one of them? Let’s talk about the potential of such a scenario. Please reach out to schedule an inquiry.
NOTE: Forrester analysts are not allowed to invest in companies we cover, so we have no financial interests in NVIDIA or any other tech firm mentioned herein.
Special thanks to my colleagues, Naveen Chhabra and Charlie Dai, for their contributions to this post.
