NVIDIA Corporation has become a dominant force in accelerated computing, graphics processing units (GPUs), and AI technologies. Founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem, NVIDIA has evolved from a graphics chip maker into a full-stack computing company that powers everything from video games and autonomous vehicles to generative artificial intelligence (LLMs), almost achieving a monopoly in its field.
By the end of 2024, NVIDIA had reached a market capitalization exceeding $3.5 trillion — a roughly 200% increase over the year (following a 235% surge in 2023) — second only to Apple. Its price-to-earnings ratio of about 75x at the start of 2024 reflects strong market leadership and a promising growth trajectory. With over $20 billion in cash reserves and minimal debt, NVIDIA is well-positioned to make strategic investments in research, development, and production capacity.
NVIDIA commands an estimated 95% market share in AI accelerators, bolstered by significant entry barriers created by its proprietary CUDA software ecosystem. The company currently enjoys exceptionally high gross margins (over 90%) on its top-tier data center GPUs, underscoring its competitive edge and pricing power.
However, recent developments hint at potential challenges on the horizon. Following the release of DeepSeek’s new open-source model, NVIDIA suffered its largest single-session loss ever — nearly $600 billion in market capitalization. A few days later, Jeffrey Emanuel, a general analyst working with several hedge funds and an AI developer, published an intriguing article outlining potential threats that could undermine NVIDIA’s near-monopoly and, by extension, its esteemed Dow Jones index membership.
Let’s summarize these threats:
- Hardware Competition: Companies like Cerebras are developing larger-scale chips that offer impressive performance, especially in inference. Their WSE-3 chip is 57 times larger than NVIDIA’s widely used H100, boasting 900,000 cores and more than 30 times the FLOPS dedicated to AI tasks—eliminating the need for the complex multi-chip interconnections currently required by NVIDIA.
- Custom Chip Development by Major Clients: Key customers, including Google, Amazon, Microsoft, OpenAI, and Apple are designing their custom chips. This trend could erode NVIDIA’s margins. For instance, Amazon is already investing in data centers using its custom chips, with over 400,000 units deployed for Anthropic. This decision contributed to a more than 25% rise in Amazon stock over the past six months.
- Software Alternatives: While NVIDIA’s proprietary CUDA platform is widely used by developers, recent improvements in AMD’s Linux drivers may offer a viable alternative. Moreover, major clients are developing their own AI frameworks — such as Apple’s MLX, OpenAI’s Triton, and Google’s JAX — potentially diminishing NVIDIA’s software advantage.
- Reliance on TSMC: NVIDIA depends on TSMC for chip production, but TSMC serves multiple clients. As competitors develop their own custom chips, NVIDIA’s current manufacturing and architectural advantages could be challenged, potentially squeezing its margins.
- Emergence of DeepSeek: DeepSeek’s ability to build models comparable to top-tier offerings at roughly 1/45th of the cost signals a potential paradigm shift in AI training. This suggests that the industry may be overspending on computing resources and that NVIDIA’s customers might be overpaying. A slowdown in overall GPU demand could further erode NVIDIA’s impressive gross margins.
These converging threats pose a significant risk to NVIDIA’s future profitability. The market may not be adequately pricing in these risks, meaning the stock could be severely overvalued — even as AI’s transformative potential and relative margins continue to rise. It seems unlikely that a company like NVIDIA can maintain what appears to be a monopoly for much longer. In a free market, monopolistic conditions are rare and, historically, have never lasted long in such a competitive, impactful, and transformative sector as artificial intelligence. Only time will tell if NVIDIA will be an exception.
