NVIDIA is establishing a new business unit focused on designing custom chips, including advanced artificial intelligence processors, for cloud computing companies and other companies, according to nine sources familiar with the company's plans. The world's dominant designer and supplier of artificial intelligence chips aims to capture a piece of the exploding market for custom artificial intelligence chips and protect itself from the growing number of companies interested in finding alternatives to its products.
The Santa Clara, California-based company currently controls about 80% of the market for high-end artificial intelligence chips, a position that has seen its market value rise 40% so far this year to $1.73 trillion after more than tripling in 2023.
NVIDIA's H100 and A100 chips provide general-purpose, high-performance AI processors to many major customers. But technology companies have begun developing their own in-house chips for specific needs. Doing so helps reduce energy consumption and potentially reduces design cost and time.
NVIDIA is now trying to play a role in helping those companies develop custom AI chips that have already flowed to rival companies such as Broadcom and Marvell Technology, according to the sources, who declined to be identified because they were not authorized to speak publicly.
Greg Reichow, general partner at venture capital firm Eclipse Ventures, said in an interview: "If you really want to optimize in terms of power consumption, etc., or optimize in terms of application cost, then it is impossible to put an H100 or A100 in it. Having just the right mix of computing is the kind of computing that is needed."
NVIDIA didn't reveal how much the H100 will cost, but each chip will cost anywhere from $16,000 to $100,000, depending on purchase volume and other factors. Meta said it plans to increase the total inventory of H100 to 350,000 pieces this year.
NVIDIA officials have met with representatives from Amazon, Meta, Microsoft, Google and OpenAI to discuss producing custom chips for them, according to two sources familiar with the matter. In addition to data center chips, the company is also pursuing telecom, automotive and video game customers.
In 2022, NVIDIA said it would allow third-party customers to integrate some of its proprietary network technologies into their own chips. The company has since said nothing about the plan, and Reuters first reported its broader ambitions.
An NVIDIA spokesperson declined to comment beyond the company's 2022 announcement.
Dina McKinney, a former AMD and Marvell executive, leads NVIDIA's customization division, where her team aims to deliver technology to customers in cloud computing, 5G wireless, video games and automotive. After Reuters reached out to NVIDIA for comment, the mentions were removed and her title changed.
Alan Weckel of research firm 650Group estimates that the data center custom chip market will grow to $10 billion this year and double by 2025. Needham analyst Charles Shi said the broader custom chip market will be worth about $30 billion in 2023, accounting for about 5% of annual global chip sales. Currently, custom chip design for data centers is dominated by Broadcom and Marvell.
In a typical partnership model, a design partner like NVIDIA provides the intellectual property and technology but leaves chip manufacturing, packaging and other steps to Taiwan Semiconductor Manufacturing Co., Ltd. or other contract chip manufacturers. NVIDIA's entry into this area has the potential to cannibalize Broadcom and Marvell's sales.
NVIDIA is in talks with telecoms infrastructure maker Ericsson over a wireless chip that incorporates the chip designer's graphics processing unit (GPU) technology, according to two sources familiar with the negotiations. 650Group's Weckle expects the telecom custom chip market to remain flat at about $4 billion to $5 billion annually.
NVIDIA also plans to target the automotive and video game markets, according to people familiar with the matter and public posts on social media. The custom car market will continue to grow at an annual rate of 20% from the current $6 billion to $8 billion, while the $7 billion to $8 billion custom chip market for video games will also grow with the launch of the Xbox and Sony's next-generation game consoles.
The current Switch handheld game console already uses the NVIDIA chip TegraX1. According to a person familiar with the matter, the new version of the Switch game console expected to be launched this year is likely to use NVIDIA’s custom design.