Artificial intelligence kingpin Nvidia Corp (NASDAQ:NVDA) is trading higher as it unlocks shareholder value and adds to its moat by extending its partnership with Amazon.Com Inc (NASDAQ:AMZN) Amazon Web Services over new AI chips and tapping Chinese expertise to accomplish its autonomous vehicle ambitions.
Nvidia and its crucial supplier, Taiwan Semiconductor Manufacturing Co (NYSE:TSM), dominate the advanced chip market, presenting a formidable challenge to OpenAI CEO Sam Altman’s ambition to enter the sector.
Nvidia controls approximately 95% of the GPU market, which is essential for machine learning, and TSMC commands about 90% of the global advanced chip market. Both companies are highly profitable, with TSMC making $76 billion in annual sales, the Financial Times reports.
Nvidia’s success stems from its ability to offer comprehensive solutions across various sectors. Their HGX H100 system, incorporating 35,000 parts, exemplifies this versatility.
However, creating a rival system involves more than chip design, overcoming Nvidia’s decades-long development advantage, including a vast array of patents.
Manufacturing challenges are significant. As TSMC’s $40 billion Arizona project shows, building a fabrication plant is a lengthy and costly process, requiring skilled workers in short supply.
Equipment procurement, such as advanced machines from ASML Holding N.V. (NASDAQ: ASML), is another hurdle due to long wait times and high costs.
Patent barriers are also formidable. TSMC holds over 52,000 chipmaking patents, with a significant number in advanced packaging—a key area for AI chips where TSMC leads.
Nvidia is also ready to take care of its China market with its H20, L20, and L2 AI chips, which retain most of Nvidia’s latest AI features but have reduced computing power to comply with U.S. regulations.
NVDA stock has gained over 234% YTD thanks to the AI frenzy.
Price Action: NVDA shares traded higher by 1.06% at $483.13 on the last check Wednesday.
