Nvidia: Designing Bespoke Chips for an Exploding Market

Nvidia: Designing Bespoke Chips for an Exploding Market

In a strategic move to capture the growing market for custom AI chips, global AI chip leader Nvidia is building a new business unit dedicated to designing bespoke chips for cloud computing firms and other customers. The company aims to protect itself from the rising number of companies seeking alternatives to its products, as well as to secure a portion of the expanding custom AI chip market.

Currently, Nvidia controls approximately 80% of the high-end AI chip market, a position that has propelled its market value to USD 1.73 trillion, a 40% increase this year alone. Nvidia’s customers, which include OpenAI, Microsoft, Alphabet, and Meta Platforms, have been scrambling to secure the diminishing supply of Nvidia chips to compete in the rapidly emerging generative AI sector.

However, in recent years, these tech giants have begun developing their internal chips to address specific needs. This development allows them to optimize on factors like power efficiency, cost reduction, and design time. Recognizing this trend, Nvidia is now aiming to play a role in aiding companies in developing custom AI chips, which have been flowing to rival firms such as Broadcom and Marvell Technology.

Greg Reichow, general partner at venture capital firm Eclipse Ventures, explains the appeal of custom AI chips, stating, “If you’re really trying to optimize on things like power or optimize on cost for your application, you can’t afford to go drop an H100 or A100 in there. You want to have the exact right mixture of compute and just the kind of compute that you need.”

Nvidia has held talks with representatives from Amazon.com, Meta, Microsoft, Google, and OpenAI to discuss the possibility of creating custom chips for them. Beyond data center chips, Nvidia has also explored opportunities in telecom, automotive, and video game markets.

While Nvidia has not publicly disclosed its plans for custom chips, estimates from research firm 650 Group project that the data center custom chip market could grow to USD 10 billion this year and double that by 2025. The broader custom chip market, which constituted around 5% of annual global chip sales in 2023, was worth approximately USD 30 billion last year.

Currently, Broadcom and Marvell dominate the custom silicon design for data centers. However, with Nvidia entering the market, there is the potential for it to eat into their sales. Dylan Patel, founder of the silicon research group SemiAnalysis, acknowledges this threat, stating, “With Broadcom’s custom silicon business touching USD 10 billion, and Marvell’s around USD 2 billion, this is a real threat. It’s a real big negative - there’s more competition entering the fray.”

Nvidia’s ambitions extend beyond AI. The company is reportedly in talks with telecom infrastructure builder Ericsson to create wireless chips that incorporate Nvidia’s graphics processing unit (GPU) technology. Additionally, Nvidia plans to target the automotive and video game markets. The custom auto chip market is expected to grow at a consistent rate of 20% per year, from its current range of USD 6 billion to USD 8 billion, and the video game custom chip market, currently valued at USD 7 billion to USD 8 billion, could see further growth with the next-generation consoles from Xbox and Sony.

As Nvidia continues to make strategic moves in the design of custom AI chips, the market landscape is likely to experience significant changes. Whether it’s aiding customers in optimizing their compute requirements or expanding into new markets such as telecom, automotive, and video games, Nvidia’s custom chip designs are poised to shape the industry’s future.