Only a few weeks ago, Nvidia’s impressive quarterly results were celebrated as evidence dispelling fears of an artificial intelligence bubble and reinforcing the company’s stronghold in the AI chip market. However, since then, Nvidia’s shares have plateaued, while Alphabet, the parent company of Google, has seen its stock surge nearly 10 percent. The market capitalization gap between these tech giants, once around $2 trillion, has narrowed to approximately $570 billion.
This shift raises questions about the sustainability of Nvidia’s dominance and the broader implications for the AI industry. Investor Michael Burry, known for “The Big Short,” has expressed skepticism about Nvidia’s financials and their long-term viability. Additionally, doubts persist about whether a near-monopoly in AI hardware truly reflects the commercial potential of the technology.
Uncertain Returns in AI Investments
While investments in AI have driven demand for Nvidia’s chips, the scale of these investments is vast, and the timeline for potential returns remains unclear. The possibility of an AI bubble looms large, as the financial commitments continue to escalate. OpenAI, the company that sparked the AI boom with ChatGPT, is now facing significant competition for the first time since its launch three years ago.
Initially, OpenAI and other startups in the sector funded their ambitions through equity. As their commitments grew, they turned to circular finance, including vendor finance, with Nvidia investing in its customers. Companies like Oracle and Microsoft have also made significant commitments to Nvidia’s chips and OpenAI’s AI products. As the scale of funding increased, these companies began raising debt, some off the balance sheet, to support their substantial spending.
OpenAI’s “Code Red” and Emerging Competition
In a recent memo to staff, OpenAI’s CEO declared a “code red,” signaling an urgent push to improve its ChatGPT chatbot while deferring development of other revenue-generating products. This urgency stems from the realization that OpenAI now faces serious competition. Alphabet’s Google has emerged as a formidable challenger, threatening both Nvidia’s dominance and OpenAI’s market position.
Google has been in discussions to sell its internally developed AI chips to Meta in a multibillion-dollar deal, potentially weakening Nvidia’s grip on the AI hardware sector. Additionally, Google’s new chatbot, Gemini 3, is reportedly outperforming OpenAI’s ChatGPT 5. Google, one of the four hyperscalers accounting for over 60 percent of Nvidia’s revenue, poses a multi-layered threat with its chip development.
Tech Giants Diversify AI Hardware
Google is not alone in its pursuit. Amazon, the world’s largest provider of cloud services, has begun installing its latest chip, Tranium3, in data centers. While Google’s TPUs and Amazon’s chips may not match the versatility of Nvidia’s GPUs, they excel in inference, where AI models deploy their knowledge. This shift in the AI market favors competitors who offer cheaper, faster, and more energy-efficient solutions.
The appetite for alternative suppliers is evident, as demonstrated by negotiations with Meta. Companies seek to mitigate risks and costs associated with dependence on Nvidia. Nvidia’s response to Google’s emergence was uncharacteristically defensive, highlighting its position as a generation ahead in the industry.
Google’s Strategic Position and Financial Strength
Google’s entry into the AI space is bolstered by its substantial financial resources. With no debt and a net cash position of around $100 billion, coupled with $150 billion in annual cash flows, Google is well-equipped to pursue its ambitions. In contrast, OpenAI relies on equity raisings, vendor financing, and debt to sustain its operations.
Google’s integrated suite of products, including platforms, infrastructure, hardware, and software, enhances the adoption of its Gemini chatbot. Since its launch a year ago, Gemini has grown from 400 million to over 650 million monthly active users. While ChatGPT remains dominant with 800 million weekly active users, the gap is closing.
Implications for Nvidia and OpenAI
Google’s rapid advance into the AI arena, along with efforts by hyperscalers to diversify suppliers and develop their own chips, poses challenges for Nvidia and OpenAI. While both companies may survive the sector’s inevitable rationalization, their paths will be more arduous. OpenAI, in particular, faces pressure to maintain its leadership while managing costs and fragmented customer bases.
Nvidia is likely to retain its position as the leading chip provider, but competition will impact its margins and growth rate. This moment is potentially transformative for the AI industry, reminiscent of the “DeepSeek moment” when a Chinese open-source chatbot challenged established players.
As the AI sector evolves, the landscape will continue to shift, with major players jockeying for dominance. The outcome will depend on strategic investments, technological advancements, and the ability to adapt to a rapidly changing environment.
