Jensen Huang Just Announced Bad News for Nvidia’s Rivals

Nvidia (NVDA -1.81%) is in a position any chip designer would envy. The company dominates the high-growth artificial intelligence (AI) chip market, and this leadership has helped bring Nvidia triple-digit revenue growth in recent quarters, along with soaring share performance. Over the past five years, the stock has climbed a mind-blowing 2,600%, and it’s keeping up the momentum this year, heading for a gain of more than 180%.

This top chip company has its share of competitors, from other chip designers like Advanced Micro Devices and Intel to its own customers — due to their in-house chip projects. For example, customers, including Meta Platforms and Amazon, have built their own AI chips to complement their suite of Nvidia graphics processing units (GPUs). Nvidia also faces up-and-coming players such as Cerebras Systems, a company that aims to soon launch an initial public offering (IPO).

This list of competitors may sound worrisome for Nvidia and its investors, but Nvidia’s chief Jensen Huang recently said something that sounds like bad news for rivals.

Image source: Getty Images.

The most powerful GPUs around

First, let’s consider where Nvidia stands today. The company, which used to focus on serving the video games community with its GPUs in its earlier days, today has broadened the GPU into many other areas. And the place where it’s stood out is in AI. Customers are flocking to Nvidia for GPUs to power their data centers and projects for one simple reason: Its GPUs are the most powerful around.

This year, the company launched the H200, a chip that delivers inference performance that’s twice as fast as its predecessor, and it quickly reached revenue in the double-digit billions. Nvidia recently said that the H200 represents its fastest production ramp up yet.

Now, Nvidia is heading into an even bigger launch — the release of its Blackwell architecture and most powerful chip ever. The company aims to ramp up production in the current quarter and almost immediately generate several billion dollars in revenue from the platform.

As mentioned, plenty of competition exists in the AI chip market, and these competitors’ products have a lower price tag than those of Nvidia. In fact, Amazon Web Services, the cloud computing arm of Amazon, even developed an AI chip called Trainium with the cost-conscious customer in mind. One concern that some investors may have is this quest for savings could prompt customers to shift away from Nvidia and favor other players.

But Chief Executive Officer Jensen Huang said something during the company’s recent earnings call that shows where Nvidia stands when it comes to its customers’ costs — and this could be seen as very bad news for rivals.

“Greatest possible revenues”

Huang says that even in the biggest data centers, power is limited, so performance per watt is critical. “Because our perf per watt is so good compared to anything out there, we generate for our customers the greatest possible revenues,” Huang says.

This means that even if customers spend more on Nvidia’s GPUs up front, the high performance translates into stronger revenue. This could compensate for the initial investment and make the Nvidia product the best bargain for a customer over time. When potential customers consider their AI options, this point will come up — and it may prompt some to go with Nvidia.

Does this mean investors in Nvidia’s rivals should worry? Not necessarily. Nvidia isn’t putting other AI chip designers out of business. With an AI market forecast to reach $1 trillion by the end of the decade, there’s need for more than one provider of AI accelerators and related products — so rivals can be successful without unseating Nvidia.

However, Nvidia investors should look at the comment from Huang as fantastic news, as it suggests Nvidia is conquering one of its biggest risks — and is here to stay as the AI chip leader.