Nvidia’s New Business Unit: Designing Custom Chips for Cloud Computing and AI Processors

Nvidia, the global leader in AI chip design and supply, is expanding its business horizons by establishing a new unit dedicated to creating bespoke chips for cloud computing firms and other organizations. This strategic move aims to capture a significant portion of the exploding market for custom AI chips and protect Nvidia from the increasing competition.

Nvidia currently dominates approximately 80% of the high-end AI chip market, a position that has boosted its market value to an impressive $1.73 trillion, following a 40% increase in 2023. The company’s customers, which include OpenAI, Microsoft, Alphabet, and Meta Platforms, have been racing to secure Nvidia’s chips to compete in the rapidly emerging generative AI sector.

However, these tech giants have started to develop their own internal chips for specific needs. By doing so, they can reduce energy consumption and potentially shrink the cost and time to design. Nvidia is now attempting to play a role in helping these companies develop custom AI chips, which have been flowing to rival firms such as Broadcom and Marvell.

Greg Reichow, general partner at venture capital firm Eclipse Ventures, explained, “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 does not disclose the prices of its H100 chips, which are higher than the prior-generation A100. Each chip can sell from $16,000 to $100,000 depending on the volume purchased and other factors. Meta has announced plans to bring its total stock to 350,000 H100s this year.

Nvidia officials have reportedly met with representatives from Amazon, Meta, Microsoft, Google, and OpenAI to discuss making custom chips for them. Beyond data center chips, the company has pursued telecom, automotive, and video game customers.

In 2022, Nvidia announced it would let third-party customers integrate some of its proprietary networking technology with their own chips. However, the company has remained silent about the program since then, and Reuters is reporting its wider ambitions for the first time.

A Nvidia spokesperson declined to comment beyond the company’s 2022 announcement. Dina McKinney, a former Advanced Micro Devices and Marvell executive, heads Nvidia’s custom unit. Her team’s goal is to make Nvidia’s technology available for customers in cloud, 5G wireless, video games, and automotives. However, her LinkedIn profile mentions were scrubbed, and her title was changed after Reuters sought comment from Nvidia.

Amazon, Google, Microsoft, Meta, and OpenAI declined to comment.

Custom Chip Market
According to estimates from research firm 650 Group’s Alan Weckel, the data center custom chip market will grow to as much as $10 billion this year and double that in 2025. The broader custom chip market was worth roughly $30 billion in 2023, which amounts to roughly 5% of annual global chip sales.

Currently, custom silicon design for data centers is dominated by Broadcom and Marvell. In a typical arrangement, a design partner such as Nvidia would offer intellectual property and technology, but leave the chip fabrication, packaging, and additional steps to Taiwan Semiconductor Manufacturing Co. or another contract chip manufacturer. Nvidia’s entry into this territory has the potential to eat into Broadcom and Marvell’s sales.

Dylan Patel, founder of the silicon research group SemiAnalysis, stated, “With Broadcom’s custom silicon business touching $10 billion, and Marvell’s around $2 billion, this is a real threat. It’s a real big negative – there’s more competition entering the fray.”

Beyond AI
Nvidia is in talks with telecom infrastructure builder Ericsson for a wireless chip that includes the chip designer’s GPU technology, according to two sources familiar with the talks. The telecom custom chip market is expected to remain flat at roughly $4 billion to $5 billion a year.

Ericsson declined to comment. Nvidia also plans to target the automotive and video game markets. The custom auto market is expected to grow consistently from its current $6 billion to $8 billion range at 20%, and the $7 billion to $8 billion video game custom chip market could increase with the next-generation consoles from Xbox and Sony.

Nintendo’s current Switch handheld console already includes an Nvidia chip, the Tegra X1. A new version of the Switch console expected this year is likely to include a Nvidia custom design, according to one source. Nintendo declined to comment.

In conclusion, Nvidia’s new business unit dedicated to designing custom chips for cloud computing firms and other organizations is a strategic move to capture a significant portion of the exploding market for custom AI chips and protect Nvidia from the increasing competition. The company’s dominance in the high-end AI chip market, coupled with the growing demand for custom chips, positions Nvidia well to capitalize on this trend and expand its business horizons.