Cerebras and Other Nvidia Rivals Just Made Key Moves. Should Nvidia Shareholders Worry?

Nvidia (NASDAQ: NVDA) has long been the artificial intelligence (AI) chip leader. The company recognized the potential of its graphics processing units (GPUs) to power this technology before most people were even talking about AI -- and at that time, Nvidia made AI its focus.

This turned out very well for Nvidia, as the company has continued innovating and remained well ahead of competitors. And major rivals aren't lightweights. They are tech powerhouses such as Advanced Micro Devices and Broadcom, as well as certain Nvidia customers that are making some of their own chips -- such as Amazon.

But the rivals I'll talk about here aren't these technology giants. Instead, they are younger, up-and-coming players focused specifically on making AI more efficient. They are names that aren't yet publicly traded -- from Cerebras to European players Euclyd and Optalysys. And now these rivals have just made key moves. Should Nvidia shareholders worry? Let's find out.

Image source: Getty Images.

Nvidia's work in AI

So, first, a quick note about Nvidia's work in the AI market so far. The company, as mentioned, is the leader, selling GPUs that power crucial AI tasks such as the training of models, and increasingly today, the inference process -- this is the model's "thinking" steps that help it make decisions and take action.

Nvidia's chips, along with its complete suite of AI products and services, have delivered explosive growth over the past few years. In the latest full year, Nvidia announced a 65% increase in revenue to more than $215 billion -- and analysts expect this to continue, with a forecast for 72% growth for the current year.

Nvidia supplies systems to all of the big tech players leading in this AI revolution, from Amazon to Meta Platforms, as well as research labs like OpenAI.

Now, let's consider the key moves made by up-and-coming players. The biggest news is an announcement by Cerebras -- this player recently filed to go public, a move that may supercharge its ability to grow and compete with Nvidia. Cerebras' technology involves a chip that's 58 times bigger than those of Nvidia -- and the company says this size gives it more memory bandwidth than Nvidia chips, and as a result, Cerebras' chips can inference at tremendous speeds.

Cerebras' major deals

Importantly, Cerebras announced deals with OpenAI and Amazon Web Services (AWS) this year. The OpenAI deal, worth more than $20 billion, involves 750 megawatts of Cerebras compute. And the deal with AWS offers Cerebras' chips global distribution.

Meanwhile, CNBC reports that European AI chip companies are taking steps to raise more funds. Euclyd is discussing the possibility of about $118 million with investors, and Optalysys is planning on raising at least $100 million this year, according to CNBC. These players and others each have their own techniques and aim to carve out a share of the chip market.

All of this shows that competition is multiplying -- and the biggest threat to Nvidia may not be another tech giant, but instead a younger player with a game-changing technology.

So, should these advancements by Cerebras and others worry Nvidia shareholders? I don't think so, and here's why. First, it's important to note that Nvidia sells complete systems, and many customers have gone all in on the company's products and services. And when Nvidia updates its systems, customers may integrate these innovations with some of their current Nvidia platforms -- so they don't have to replace every component with every upgrade. All of this makes it "easy" for customers to stick with Nvidia.

Selling a system

On top of this, the word to note here is "system" -- Nvidia isn't just selling a chip, but an entire offering, including chips, networking, and enterprise software. This may be difficult for a rival to beat.

Second, Nvidia is extremely focused on innovation and reinforcing its strengths through acquisition, too. For example, the company's purchase of Groq assets last year helped boost its inference offerings. And Nvidia has not only committed to updating its chips annually, but it also spends significantly on research and development. The company reported more than $18 billion in R&D spending last year.

Considering Nvidia's commitment to innovation and resources to support R&D, it seems unlikely that the company would stand by while others slip ahead. Of course, Cerebras and other smaller players could carve out some market share in the years to come -- and become successful. But this doesn't mean they will knock Nvidia out of the top spot.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.