TLDR
- Nvidia stock declined 2.6% Tuesday following reports that Google is in talks with Meta for a multibillion-dollar AI chip deal beginning in 2027
- The deal would mark Google’s shift from renting tensor processing units via cloud services to selling them directly to customers
- Nvidia maintains its technology stays “a generation ahead” of competitors, offering superior flexibility and performance
- Google could potentially capture 10% of Nvidia’s annual revenue through direct TPU sales to cloud customers
- Major tech companies including Amazon and Microsoft continue developing their own AI chips while buying from Nvidia
Nvidia shares tumbled 2.6% Tuesday after new reports about Google’s AI chip ambitions. The Information broke the story that Google is negotiating with Meta on a multibillion-dollar agreement.
The deal would supply Meta with Google’s tensor processing units for data centers starting in 2027. This marks a departure from Google’s current business model.
Right now, Google only rents its TPUs through Google Cloud. Companies access the chips remotely without owning them. The new strategy suggests Google wants to sell TPUs outright.
Google is reportedly pitching this opportunity to other cloud customers as well. Industry sources claim the company believes it can grab up to 10% of Nvidia’s yearly revenue.
Nvidia pushed back against concerns on social media. The chipmaker posted that it stays “a generation ahead of the industry.” The company stressed its processors can run any AI model across all computing platforms.
Tech Giants Build Their Own Chips
Nvidia controls more than 90% of the AI chip market. But that commanding position faces increasing pressure from its biggest customers.
Google recently launched Gemini 3, a cutting-edge AI model trained exclusively on TPUs instead of Nvidia hardware. Amazon closed a deal with Anthropic involving 500,000 of its custom-built AI chips. Microsoft has developed its own processors as well.
These tech giants are essentially becoming both partners and rivals to Nvidia. They continue purchasing Nvidia chips while building alternatives.
AMD stock also dropped over 4% on Tuesday’s news. The broader AI chip sector felt the impact of Google’s reported expansion plans.
A Google representative said the company experiences “accelerating demand for both our custom TPUs and Nvidia GPUs.” The statement indicated Google plans to continue supporting both chip types.
Nvidia Defends Its Dominance
CEO Jensen Huang discussed TPU competition on a recent earnings call. He pointed out that Google still buys Nvidia chips and that Gemini runs on Nvidia technology.
Huang mentioned contact with Demis Hassabis, who leads Google DeepMind. He said Hassabis confirmed that AI “scaling laws” continue working. These laws suggest bigger chip deployments and datasets produce better AI models.
DA Davidson research from September valued Google’s TPU business and DeepMind at potentially $900 billion. The firm noted strong interest from AI developers in buying Google’s chips.
Tuesday’s decline erased Monday’s gains as tech stocks face ongoing pressure. Worries about AI market sustainability have weighed on Nvidia and similar companies recently.
Prominent investor Michael Burry has bet against Nvidia, drawing parallels to the dot-com bubble. Some analysts question whether AI spending justifies current valuations.
Nvidia distributed a memo to Wall Street analysts over the weekend addressing criticism. The company defended its investment strategy and called its business practices transparent.
Nvidia argues its GPUs provide more flexibility than custom chips like TPUs. The company says its processors handle diverse workloads better than application-specific integrated circuits.
Google’s potential move into direct chip sales could reshape competition in AI infrastructure. The Information’s report suggests this expansion represents a major strategic shift for Google’s hardware division.
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