Nvidia Faces Serious Competition from Advanced Micro Devices and Cerebras Systems

In the fast-evolving world of technology, Advanced Micro Devices (AMD) and Cerebras Systems are stepping up as significant contenders in the chip industry.

Over the past two years, artificial intelligence (AI) has become a buzzword in financial news and discussions. The impact of AI is pervasive, making it a central focus for investors and businesses alike.

Leading the charge in the AI sector is Nvidia (NVDA), whose stock has soared nearly 900% in just two years, elevating the company to one of the most valuable entities globally.

The key driver for Nvidia’s success has been its compute and networking division, where its graphics processing units (GPUs) and data center services are located. With Nvidia holding about 88% of the total addressable market for GPUs, it's fair to ask whether there is a real chance for another company to overtake it.

This article will delve into the two companies viewed as Nvidia's most significant competitors and evaluate their potential to challenge Nvidia's dominance.

1. Advanced Micro Devices

Nvidia’s closest rival is undoubtedly Advanced Micro Devices (AMD). Like Nvidia, AMD has been expanding its GPU and data center offerings and capitalizing on the AI trend.

AMD’s recent third-quarter earnings report revealed an 18% year-over-year revenue increase, reaching $6.8 billion. Additionally, adjusted gross profit and operating profit saw year-over-year increases of 23% and 34%, respectively.

In recent years, AMD has aggressively acquired smaller AI-focused companies. While it may take time for these to yield significant results, the company’s growth in sales and profit margins is encouraging as they integrate new products to enhance their AI capabilities.

Despite AMD's solid position, a deeper analysis presents a different perspective.

The discrepancy in scale between Nvidia and AMD is striking. In the latest quarter, Nvidia reported $30 billion in revenue and generated $13.5 billion in free cash flow, vastly outpacing AMD. The company's revenue and cash flow growth rates are also significantly higher compared to AMD.

Nvidia's ability to reinvest its profits into research and new products allows it to remain ahead. Notably, Nvidia is set to launch its next-generation Blackwell GPUs shortly, with demand already surpassing expectations. In contrast, AMD's financial forecasts do not inspire the same level of confidence.

In summary, while AMD is poised to benefit from the growing generative AI market, it is unlikely to significantly impact Nvidia's established dominance in the near term.

2. Cerebras Systems

The second contender is Cerebras Systems, a company that many might not know about as it is still privately held. However, it is preparing for an initial public offering (IPO), which will bring its operations into the spotlight.

Cerebras operates differently from Nvidia, focusing on a unique chip architecture known as the wafer-scale engine (WSE). Essentially, a WSE functions as an enormous chip, whereas Nvidia's GPUs are much smaller.

Cerebras claims that its larger chip can offer more computing power, memory, and bandwidth compared to traditional GPU setups. While this innovative architecture hints at the potential to challenge Nvidia, there are factors to consider.

Similar to AMD, Cerebras remains significantly smaller than Nvidia. In 2023, Cerebras reported revenues of $78.7 million, a 220% increase over the previous year. Additionally, the company has generated $136 million in sales during the first half of 2024.

This growth is commendable, yet Cerebras is far from matching Nvidia's scale. A concerning aspect is that almost 90% of Cerebras' revenue comes from a single customer, indicating that its market position is still vulnerable.

While the WSE architecture shows promise for future adoption, it has not yet gained widespread acceptance. Though there may be increasing interest in alternative chip designs as IT investments grow, it is unlikely that Nvidia’s established customer base will suddenly switch to a newer, less proven type of chip.

Cerebras intrigues as a competitor, but Nvidia investors need not be overly concerned about Cerebras posing an immediate threat.

AMD, Cerebras, Competition