Nvidia's Waning Dominance in the AI Chip Market: Strategic Risks and Long-Term Stock Implications

The AI chip market, once a near-monopoly for Nvidia, is undergoing a seismic shift as Big Tech companies like Google, Meta, and Microsoft accelerate their in-house chip development. This vertical integration strategy, driven by the need for cost control and workload optimization, poses a strategic risk to Nvidia's long-term dominance and stock performance. While the company remains a leader in AI infrastructure, the rise of custom silicon from its largest clients threatens to erode market share and profitability.

The Rise of Big Tech's In-House AI Chips

Big Tech's investment in AI infrastructure has surged, with Google, Meta, and Microsoft projecting capital expenditures exceeding $70–93 billion in 2025 alone. These funds are not only expanding data centers but also fueling the development of proprietary AI chips. For instance, Google has deployed up to one million Ironwood TPU chips from Anthropic, while Microsoft integrates Nvidia-designed technology into its next-generation AI compute chips. Alphabet's custom Tensor Processing Units (TPUs) and advanced Gemini AI models are directly challenging Nvidia's dominance according to market analysis.

JPMorgan estimates that custom chips from Google, Amazon, Meta, and OpenAI could capture 45% of the AI chip market by 2028, up from 37% in 2024. This shift reflects a broader trend: Big Tech's desire to reduce reliance on external suppliers and optimize performance. Amazon, for example, has already deployed its Trainium2 chips at scale. Such developments signal a structural shift in the AI chip ecosystem, where control over computing resources becomes a critical competitive advantage.

Nvidia's Strategic Responses and Financial Resilience

Nvidia's FY2025 revenue reached $130.5 billion, a 114.2% increase from FY2024, driven by its Data Center segment, which accounts for 88% of total revenue. Its gross profit margin expanded to 74.99%, underscoring strong pricing power. However, the company faces dual threats: competition from custom silicon and geopolitical headwinds, such as U.S. export controls limiting access to the Chinese market. These restrictions are estimated to cost Nvidia $10.5 billion annually.

To mitigate these risks, Nvidia has pursued sovereign AI initiatives in Europe and the Middle East and committed to a $500 billion U.S. AI infrastructure investment plan. The company has also secured $500 billion in orders for its AI chips between 2025 and 2026 and expanded partnerships, including a $100 billion investment in OpenAI. These moves aim to strengthen supply chain resilience and maintain leadership in AI infrastructure.

Financial Implications and Stock Performance

Despite these efforts, Nvidia's stock has experienced volatility. In 2025, the stock gained over 30% year-to-date but lost 17% from its highs. Q2 FY2026 revenue hit $46.7 billion, with the Data Center segment contributing $41.1 billion. However, analysts warn that custom chips could gradually erode Nvidia's profit margins.

The company's dominance in AI infrastructure-bolstered by an 80% market share and the CUDA platform's ecosystem- provides a buffer. Yet, the rise of alternatives like Google's TPUs and Amazon's Trainium2 highlights the fragility of this position. As stated by Juniper Research, innovations in commercial chipsets and microfluidics for cooling are reshaping the industry, further intensifying competition.

Strategic Risk Assessment and Long-Term Outlook

Nvidia's long-term stock performance hinges on its ability to adapt to a fragmented market. While its Blackwell architecture and Rubin platform offer cutting-edge solutions, the proliferation of custom silicon could reduce demand for general-purpose GPUs. Strategic risks include:1. Market Share Erosion: Custom chips from Big Tech could capture 45% of the AI chip market by 2028.2. Geopolitical Vulnerabilities: U.S.-China export controls could cost $8–10 billion annually.3. Valuation Pressures: High expectations for AI growth may lead to periodic stock corrections if revenue growth slows.

However, Nvidia's leadership in AI infrastructure, coupled with its R&D investments and ecosystem dominance, positions it to maintain a significant market share. Analysts project that the AI chip market's growth will create opportunities for coexistence between general-purpose and custom solutions.

Conclusion

Nvidia's waning dominance is not a near-term collapse but a gradual erosion driven by Big Tech's vertical integration. While the company's financial resilience and strategic initiatives provide a strong foundation, investors must weigh the risks of market fragmentation and geopolitical volatility. For Nvidia to sustain its stock performance, it must continue innovating and expanding its ecosystem to stay ahead of the curve in an increasingly competitive landscape.