Apple says no to Nvidia GPUs. Is this the end for Nvidia?

Nvidia (NASDAQ: NVDA) is one of the best stocks to invest in since the beginning of 2023. Its rise is centered on the massive demand for artificial intelligence (AI) computing power. Much of that demand comes from big tech players, but one of them recently said no to Nvidia.

Although Apple (NASDAQ: AAPL) Apple was slow to get into artificial intelligence, but its product was highly anticipated. To the surprise of many, Apple did not use Nvidia GPUs (graphics processing units) to create its AI model. Could this be a sign that Nvidia’s GPU empire is starting to crack?

GPUs have been the most popular option for training AI models

Nvidia GPUs have become incredibly popular to run AI workloads. Nvidia’s GPUs are best-in-class, and the company has cutting-edge software to help get the most out of GPU performance. This is important because these servers running AI models contain thousands of GPUs. GPUs are a top choice for this type of workload because they can perform many calculations in parallel, unlike the central processing units (CPUs) found in PCs. They are also effective for other tasks, such as cryptocurrency mining, engineering simulations, and drug discovery.

But since these chips aren’t specifically designed for AI calculations, there’s probably a better way to handle the calculations. Those chips exist, and they’re not made by any of Nvidia’s traditional competitors.

One of these alternatives is Alphabet‘s (NASDAQ: GOOG)(NASDAQ: GOOGL) Tensor Processing Unit (TPU). Alphabet’s TPU was designed specifically for these large-scale AI calculations, but its flexibility is limited. If a workload is properly configured, TPUs outperform Nvidia’s GPUs, but only for specific use cases.

This is the main reason why Apple chose Alphabet’s TPUs to train its Apple Intelligence model. Does one of the biggest players in the industry choosing purpose-built hardware over a broader model spell the end for Nvidia?

Nvidia’s investment thesis is based on customers buying more GPUs

Part of the reason some investors (including myself) are hesitant to invest in Nvidia stock today is because of the company’s extreme growth expectations. Anyone buying shares today assumes that demand for Nvidia’s GPUs will continue to grow significantly. However, they’re not considering the possibility that once developers become accustomed to configuring their AI models in a particular way, they might opt ​​to use purpose-built hardware like TPU.

This could be a real setback for Nvidia, as Wall Street analysts expect Nvidia’s revenue to grow 98% this year, to $110 billion, and 36% next year, to $151 billion. If demand for its products were to decline, those forecasts could be called into question.

The story continues

It’s not just Alphabet with its custom design. Amazon (NASDAQ: AMZN) And Microsoft (NASDAQ: MSFT) Both have their own custom chips specifically designed for training AI models. None of these three companies sell these products directly to consumers.