Nvidia’s absolute dominance in the artificial intelligence hardware sector faced a fresh test on Tuesday, sending jitters through the stock market. Reports surfaced suggesting that Meta is in negotiations to equip its future data centres with AI chips manufactured by Google, rather than relying exclusively on Nvidia’s hardware. The immediate reaction from investors was sharp; Nvidia’s share price took a significant hit during trading, reflecting the market’s sensitivity to any threat against the chipmaker’s near-monopoly.

Details of the Potential Alliance

According to a report by the US tech publication The Information, Meta is exploring a multi-billion dollar investment to acquire Google’s Tensor Processing Units (TPUs). Sources familiar with the matter indicate that the Facebook parent company could begin installing these processors in its own facilities as early as 2027. Furthermore, the discussions reportedly include Meta leasing computational capacity directly from Google.

Currently, Meta relies heavily on Nvidia’s graphics processors for its AI infrastructure. If this deal were to materialise, it would mark a significant pivot for Google as well. Until now, the search giant has used its TPUs almost exclusively for its own internal workloads or for clients renting space in its cloud. Selling the hardware directly to other tech behemoths would place Alphabet, Google’s parent company, in direct competition with Nvidia.

A Challenge to the Status Quo

The implications of such a partnership are substantial. Industry insiders suggest that Google executives are targeting a slice of the pie equivalent to roughly 10 per cent of Nvidia’s annual revenue. The primary allure for Meta appears to be cost efficiency, as Google’s TPUs are reportedly cheaper than Nvidia’s premium offerings.

The market reaction was swift. Nvidia shares plummeted by more than six per cent at one point during the day, struggling to regain ground before closing nearly three per cent down. In contrast, the potential beneficiaries of this realignment saw gains, with Meta and Alphabet closing the day up by 3.8 per cent and 1.5 per cent, respectively. Competitor AMD also suffered collateral damage, dropping around four per cent.

Nvidia Hits Back

Nvidia did not take the speculation lying down. In a somewhat uncharacteristic move, the company issued a response via the social media platform X. While ostensibly congratulating Google on their progress, the statement was laced with defiance, asserting that Nvidia remains “a generation ahead” of the competition. The company claimed it possesses the “only platform capable of running every AI model,” emphasising its superior performance, versatility, and interchangeability compared to rivals.

The War Chest and Future Uncertainties

Despite the brave face, the volatility highlights underlying anxiety regarding a potential “AI bubble”. The Information noted that negotiations between Meta and Google are ongoing and far from finalised. Historically, Nvidia has leveraged its massive capital reserves to neutralise such threats, often investing billions in companies on the condition that they commit to purchasing Nvidia hardware. Given the company’s financial health, they certainly have the means to outmanoeuvre Google if necessary.

Nevertheless, the mere existence of these talks serves as a reminder that the tech industry is actively seeking alternatives to Nvidia’s stranglehold on the market, creating a volatile environment where alliances can shift rapidly.