Nvidia dominates the AI ​​chip market, but Apple has secured its supply from another tech giant

Nvidia (NASDAQ: NVDA) has been a hot buy for the past couple of years, largely because of the key role it plays in artificial intelligence (AI). The company’s AI chips are crucial for companies developing AI models. And Nvidia has an 80% market share when it comes to AI chips. That’s part of the reason investors have remained bullish on the stock — it’s arguably the stock best positioned to benefit from growing demand for AI.

But given how lucrative the opportunities in AI are, it’s only a matter of time before more competitors emerge and fight for market share. Apple (NASDAQ:AAPL) recently turned to one of those unlikely competitors to source chips for its new AI-powered iPhones.

Apple bought chips from Alphabet

One of the companies that has developed its own chips is Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). And Apple trained its new AI system, called “Apple Intelligence,” using Alphabet’s custom chips, according to a research study. The company used two versions of Google’s tensor processing unit to develop its AI models, which give iPhone users access to generative AI features, including advanced writing tools, the ability to generate images and a Siri assistant with “full superpowers us”.

Could more competition be on the way?

Alphabet is a potentially strong competitor for Nvidia to worry about. The company has a lot of resources to work with. Last year, Alphabet generated more than $69 billion in free cash flow. It has invested in its AI chatbot Gemini, and the AI ​​chips could give it another growth opportunity to accumulate cash.

Courts recently found that the company’s search engine, Google, has an illegal monopoly. And depending on the fallout from that finding, Alphabet may soon see a huge incentive to find a new growth opportunity to pursue, as the ruling may have a negative effect on a key part of its business.

Beyond Alphabet, however, there are other competitors for Nvidia to worry about. Meta platforms worked on an AI chip of its own, as well Amazon. And investors shouldn’t forget either AMDwhich is a more traditional rival to Nvidia. Although late to the game, AMD has made it clear that AI is a big priority for the business and could also take significant market share from Nvidia in the future.

Should Nvidia Investors Be Worried?

Nvidia has generated incredible gains thanks to its dominance in the AI ​​chip space. And it’s working to innovate and release more advanced chips to ensure it stays on top. But maintaining such a large market share can be incredibly difficult, especially with so many big tech companies with deep pockets to contend with. They will not simply ignore such a great opportunity in AI chips.

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The company’s revenue has grown over the past year, with Nvidia’s growth rate in recent quarters being well over 200%. These types of numbers, while extremely impressive, are also extremely difficult to maintain. At some point, Nvidia’s growth rate will begin to decline, especially if more competition emerges in the field. And its high-priced chips may also need to come down in price, if at all, which may lead to both a slower growth rate and lower profit margins than the 50-plus percent margins on who mediated them lately.

Is Nvidia stock still a buy?

Nvidia stock has given back some gains in recent weeks, but it’s still a top company to invest in if you want exposure to the red-hot AI market. While other companies may try to take market share from Nvidia, that doesn’t mean they’ll be able to do so overnight.

Nvidia is still in a great position to continue to grow, but I would expect its growth rate and margins to slow down a bit in the coming quarters, especially as companies may cut back on AI spending due to a possible economic slowdown . Nvidia stock may struggle in the short term, but as long as you’re willing to hang on for the long haul, it can still be a good buy. However, you should prepare yourself for some challenges ahead.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. David Jagielski has no position in any of the listed stocks. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.

Nvidia dominates the AI ​​chip market, but Apple has secured its supply from another tech giant was originally published by The Motley Fool