Signs indicate that Alphabet Inc., the search engine giant, is making progress in challenging NVIDIA Corp.'s dominance in AI accelerator products, potentially reshaping the rankings of the world's most valuable companies.
With widespread acclaim for Alphabet's newly launched Gemini AI model and rising demand for its AI chips driving stock gains, investors are reassessing the tech industry landscape and potential shifts in market leadership. Since mid-October, Alphabet's stock has surged 35%, adding nearly $1 trillion to its market capitalization. As of Monday's close, the Google parent's market cap still trails NVIDIA's $4.4 trillion by approximately $590 billion, but this year's rally has significantly narrowed the gap.
Reports suggest Meta Platforms Inc. is in talks to use Google's Tensor Processing Units (TPUs) in its data centers by 2027, with potential chip leasing from Google Cloud as early as next year. Alexandra Morris, Investment Director at Skagen AS, noted: "While NVIDIA was expected to deliver staggering growth, market participants are now more alert to competitive dynamics. The narrative that 'NVIDIA is the sole provider of chips for data center expansion' no longer holds."
A potential deal with Meta could establish TPUs as a viable alternative to NVIDIA's industry-standard chips, which are currently relied upon by tech giants like Meta and OpenAI, as well as startups, for AI model development and computing power. Alphabet's shares extended gains for a third consecutive session, rising 3.5% in pre-market trading Tuesday, while NVIDIA fell 3.5% and smaller rival Advanced Micro Devices Inc. declined 3%.
NVIDIA's valuation has moderated, with forward P/E at 26x—below its 10-year average of 35x—while Alphabet's forward P/E has climbed to 27x, above its historical 20x average. A partnership with Meta, one of the biggest investors in data centers and AI development, would highlight long-term challenges to NVIDIA's dominance. However, TPUs' viability as a sustainable alternative hinges on demonstrating necessary efficiency and computing power.
Florian Ielpo, Head of Macro at Lombard Odier Investment Managers, commented: "Google's TPUs do present a potential alternative, but the AI industry remains in its early stages with a steep learning curve. NVIDIA still leads, but the landscape may become more fragmented as competitors like Google develop alternative solutions."