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AI Chips: the high-powered market behind flashy consumer-centric AI

Nvidia's AI chip dominance, fueled by its innovative software and market lead, power tech giants and the S&P 500. As demand for AI chips remains strong, rising competition signals a shift in future reliance.

Flashy, consumer-centric AI is all the rage: people want to know how they can use personalized AI to make their lives easier. But behind the fast-paced innovations offered by technology companies like Apple, Google, and Meta are the booming artificial intelligence chips that enable these algorithms to run complex calculations. 

Nvidia Leads in AI Chips

In the field of AI chips, Nvidia has long been established as the default option. Founded in 1993 as a graphics processing company, Nvidia has since emerged as a leader in AI chips. Referred to by Bloomberg News as the “workhorse for training AI Models,” Nvidia chips have been used by nearly every major tech company, causing the company’s revenue to skyrocket.In March, an approximated $50 billion had been spent on their chips, and AI startups alone brought in $3 billion of those sales. In the first fiscal quarter of 2025, the company reported a 262% increase in year-over-year revenue. 

Nvidia’s impact extends far beyond the US market. Internationally, as governments race to build new data centers and build AI in their native languages, they often employ Nvidia chips to do so. 

Nvidia also plans to expand its data centers, which will help it maintain its market dominance. In the last quarter alone, Nvidia’s data center business grew an astonishing 427%. 

Nvidia briefly held the title of the largest publicly traded company, momentarily surpassing Microsoft earlier in June. Nvidia is now worth over $3 trillion, and its shares have risen 150% this year to-date. 

Capturing an estimated 80% market share of AI chips, Nvidia has been largely responsible for driving the unprecedented growth of the S&P 500. 

Since the beginning of 2022, Nvidia’s stock accounted for 44% of S&P 500 growth, bringing some speculation that the market is excessively dependent on Nvidia. If there were a downturn in Nvidia’s stock, the rest of the market would fall back on other companies, whose gains are outpaced by those of the chip-making giant. 

Others speculate that Nvidia’s success mimics that of Cisco, which led the stock market in the dot-com bubble burst of the early 2000s. Despite similarities, many argue that the two companies face disparate market conditions and operate different business models. While Cisco faced an increasingly saturated market and a slowed pace of innovation, Nvidia has continued to lead due to their rapid innovation. They also benefit from a broader revenue base than Cisco, including enterprises, AI technology, and data centers. 

Competition and the Future of Chip-Making

While Nvidia is undeniably the leader in the chip market, competition looms. The company’s software has been and continues to be its differentiator. But many large companies that have been publicly releasing consumer-focused AI products have also been working on their own chip technology. 

Microsoft, Meta, Google, and Amazon have all been working on developing AI chips. Google has been working alongside chip maker Broadcom to develop their AI chips, which were recently released. Microsoft likewise released an AI chip called the Maia 100 last year. 

At present, Intel and AMD are considered Nvidia’s primary chip-making competitors. Cloud companies and startups are also budding sources of competition for Nvidia.  

Companies are certainly wary of becoming too reliant on a singular chip maker, and future reliance on Nvidia is sure to decline in coming years. For the moment, however, Nvidia’s innovation lead has maintained their market dominance and established them as the power-to-be for the foreseeable future. 

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Image Credit: Annabelle Chih (Bloomberg/Getty Images)
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