NVIDIA's entry into the custom chip field, is it possible to "create another Arm"?

Overnight, the AI leader NVIDIA in the US stock market rose by 3.58%, reaching a new historical high. The stock has risen more than 9% this week and 45.7% year-to-date. Its total market value has reached $1.78 trillion, approaching Amazon and Alphabet-C.

In terms of news, according to media reports, at least nine informed sources revealed that NVIDIA is establishing a new business department dedicated to designing custom chips for cloud computing companies, aiming to further consolidate NVIDIA's leadership position in AI chips.

Some analysts believe that this move represents NVIDIA's ambitious plan to internally incubate a specialized Arm design authorization.

NVIDIA's Entry into the Custom Chip Field

NVIDIA's current flagship products, H100 and A100, are general AI GPUs, and these two key products firmly control about 80% of the high-end AI chip market.

However, some tech companies have started to develop their own chips for specific needs to replace NVIDIA's products in order to reduce power consumption and lower costs. Insiders say that NVIDIA plans to help these companies develop custom AI chips to minimize the impact of product substitution.

It has been reported that NVIDIA executives have met with representatives from companies such as Amazon, Meta, Microsoft, Alphabet-C, and OpenAI to discuss the customization of chips for them. In addition to data center chips, NVIDIA is also seeking customers in the telecommunications, automotive, and video game industries.

Some media outlets have noticed that according to LinkedIn profiles, Dina McKinney is the head of NVIDIA's chip customization department. She has previously been responsible for AMD's Cat series CPU microarchitecture, part of Qualcomm's Adreno GPU design, and Marvell's infrastructure processors. Her team's goal is to provide technology for customers in the fields of cloud computing, 5G wireless, video games, and automotive. However, this information has been deleted, and Dina's title has been modified.

The custom chip market is currently booming. According to research firm 650 Group, the data center custom chip market is expected to grow to $10 billion this year and double by 2025. Other institutions believe that the total size of the custom chip market currently exceeds $30 billion.

It is not surprising that NVIDIA has set its sights on this enticing market.

In addition to data center chips, NVIDIA also hopes to enter the broader field of custom chips. According to media reports citing informed sources, the new version of the Nintendo Switch game console expected to be launched this year is likely to be equipped with NVIDIA's custom chip.

Creating Another Arm?

In 2022, NVIDIA attempted to acquire Arm, a chip design company under SoftBank, for $66 billion, but ultimately failed due to regulatory resistance.

Some analysts believe that NVIDIA wanted to acquire Arm because they saw the potential to commercialize their technological capabilities. Now, with the establishment of a dedicated custom chip division, NVIDIA may have already seen the future direction and started preparing to once again change the entire industry. Perhaps, it no longer needs to acquire externally and can completely incubate an Arm internally.

With the continued popularity of the AI wave, more and more companies hope to lower costs and develop proprietary chips for their products, including Amazon, Meta, Microsoft, Alphabet-C, OpenAI, and other major customers of NVIDIA. However, many of these companies lack the specialized knowledge to design chips.

NVIDIA has considerable experience in chip design. Moreover, many designs may not materialize into products due to their lack of versatility. These sealed-off technologies can be monetized through the licensing of custom chip technology, yielding substantial profits.

Currently, the data center custom chip design market is mainly dominated by Broadcom and Marvell, with annual revenues of $10 billion and $2 billion, respectively. Analysts predict that NVIDIA's entry will intensify competition in the custom chip field and erode the market share of Broadcom and Marvell.