Nvidia Stock Drops on Rumored Google–Meta Chip Deal. Should Investors Be Worried?

Core Viewpoint - Nvidia's stock is experiencing a decline due to concerns over potential competition from Alphabet's tensor processing units (TPUs) and the possibility of its major customers reducing reliance on Nvidia's GPUs [1][2][3]. Group 1: Market Dynamics - Meta Platforms is reportedly planning to purchase Alphabet's TPUs, which raises questions about Nvidia's market dominance in AI hardware [2][4]. - Major tech companies, including Alphabet, Microsoft, Meta Platforms, and Amazon, are developing their own processors to lessen dependence on Nvidia's technology [3][4]. - Google Cloud executives estimate that expanding TPU sales could capture approximately 10% of Nvidia's annual revenue, potentially impacting Nvidia's gross margins [4][6]. Group 2: Financial Performance - Nvidia's market capitalization stands at $443.6 billion, with a current stock price of $175.23, reflecting a 4.01% decrease [5][6]. - The company has maintained a gross margin of 70.05%, although it has seen a slight decline from 74.6% in the previous year [6][7]. - Despite historical cyclical trends, Nvidia has experienced significant growth due to soaring demand for AI processors over the past five years [6][9]. Group 3: Competitive Landscape - The emergence of custom chips and processing alternatives from Nvidia's customers poses a significant risk to the company's growth trajectory [9]. - The adoption of Alphabet's TPUs by companies like Meta Platforms is not expected to lead to an immediate abandonment of Nvidia's processors, but rather a gradual shift towards more cost-effective solutions [8][9].