Could This "Magnificent Seven" Stock End Up Being Nvidia's Biggest Rival?

Nvidia (NASDAQ: NVDA) has been the most valuable company in the world due to the strength of its chip business. As tech companies invest in artificial intelligence (AI) and develop next-gen models, the need for Nvidia's leading chips continues to grow.

They aren't, however, very economical for companies, which is why some businesses have gone to custom chipmakers. Some tech companies are also making their own chips and may end up competing for similar markets and customers as Nvidia. One "Magnificent Seven" stock that the chipmaker might have to watch out for is Amazon (NASDAQ: AMZN). Here's why it may ultimately end up being its biggest rival.

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Amazon to start selling AI chips?

Amazon has developed its own AI chip, Trainium, which Amazon Web Services (AWS) utilizes, and the company has reportedly been considering selling it to other businesses, unlocking a potentially lucrative growth opportunity. It's designed to be an alternative to Nvidia's high-priced chips, focusing on being more economical and energy efficient.

According to the company's website, the chip "delivers better cost-per-token at production scale for AI workloads that demand the highest performance -- because every layer of the system was designed to minimize waste." At a time when excessive spending on tech is becoming a greater concern for investors, there may be more pressure for businesses to look elsewhere besides Nvidia for their AI chip needs.

Amazon is a formidable rival for Nvidia to worry about, given its deep pockets and strong leadership position in the tech sector. If the company's chips are good enough for AWS, odds are, they will meet the needs of many other prospective customers as well.

Is Nvidia's stock in trouble?

Nvidia's business has been facing the threat of other chip alternatives for a while now, and yet, its growth remains incredibly strong. While Amazon has the potential to be a huge player in the AI chip market, whether it devotes the manufacturing capacity and resources necessary to do so is the big question.

However, whether it's Amazon or other custom chipmakers, there could be challenges ahead for Nvidia, particularly as there's greater pressure for tech companies to bring down their AI-related costs. The good news is that with incredibly high margins, Nvidia has the ability to bring down prices to protect its market share (should it need to) and still be able to grow both its top and bottom lines.

While the Amazon threat isn't a serious one just yet, it's definitely one Nvidia investors may want to keep an eye on, as rising competition could certainly impact the company's future profit growth.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.