Nvidia's Most Significant Competitors: AMD and Cerebras Systems

Advanced Micro Devices and Cerebras Systems are emerging as major forces in the chip world.

For the past few years, artificial intelligence (AI) has dominated financial news, becoming a crucial topic. The conversation around AI shows no signs of slowing down.

In this buzzing AI landscape, Nvidia (NVDA 2.84%) stands out as a remarkable success. Over the last two years, Nvidia’s stock price has skyrocketed by nearly 900%, solidifying its status as one of the most valuable companies globally.

Nvidia’s success can largely be attributed to its compute and networking divisions, particularly its graphics processing units (GPUs) and data center offerings. The company controls about 88% of the total market for GPUs, prompting the question: Can anyone challenge Nvidia's dominance in the chip sector?

In this article, we will examine two companies that pose serious competition to Nvidia and consider their chances of surpassing this industry leader.

1. Advanced Micro Devices (AMD)

The most notable competitor to Nvidia is Advanced Micro Devices (AMD 0.68%). Like Nvidia, AMD is developing its own GPU and data center business, benefiting from the growing interest in AI.

AMD’s recent performance has been promising. In its third-quarter earnings report released on October 29, the company reported an 18% increase in revenue year over year, reaching $6.8 billion, along with significant improvements in its gross profit and operating profit.

In recent years, AMD has aggressively pursued acquisitions of smaller AI-focused companies. While integrating these acquisitions may take some time, there is optimism about AMD’s potential for sales growth and enhanced profit margins as it strengthens its AI offerings.

However, a deeper look into AMD's current situation reveals challenges. For instance, Nvidia dwarfs AMD in size. Most recently, Nvidia recorded $30 billion in revenue and $13.5 billion in free cash flow in a single quarter. The contrast in scale between these companies is staggering.

Moreover, Nvidia’s growth trajectory is notably steeper than AMD's. The company has been able to reinvest its profits into research and development and product launches, with its next-generation Blackwell GPUs set to debut soon. Current demand for these GPUs is exceedingly high, while AMD's projections lack similar enthusiasm.

In conclusion, while AMD is poised for growth due to the expanding AI market, its chances of surpassing Nvidia are quite slim.

2. Cerebras Systems

The second major competitor to Nvidia is Cerebras Systems. Many may not be familiar with Cerebras, as it remains a private entity. However, the company is planning for an initial public offering (IPO), which may bring it into the spotlight.

Cerebras distinguishes itself by utilizing a unique chip architecture known as the wafer-scale engine (WSE). In layman's terms, a WSE is a much larger chip compared to the smaller GPUs produced by Nvidia.

Cerebras claims that its larger wafer-style chip offers significantly enhanced computing power, memory capacity, and bandwidth compared to traditional GPU setups. While such innovation could suggest an imminent challenge to Nvidia, there are crucial factors to consider about Cerebras.

Similar to AMD, Cerebras is also much smaller than Nvidia. In 2023, it reported revenues of $78.7 million, a remarkable increase of 220% year over year. The company has already achieved $136 million in sales in just the first half of 2024.

While these growth figures are impressive, it's important to note that Cerebras relies heavily on a single customer for nearly 90% of its revenue. This concentration raises questions about the broader acceptance of its WSE technology. Although the potential for businesses to adopt new chip designs is significant, it's unlikely that Nvidia's established customers will transition en masse to a new, less proven chip architecture in the near term.

Overall, while Cerebras shows promise, there is little cause for concern about it negatively impacting Nvidia's market position anytime soon.

Disclaimer: The author holds shares in Nvidia. The disclosure policy states that the platforms mentioned may have investments or recommendations for Nvidia and AMD.

Nvidia, AMD, Cerebras