Prepare the crown for Nvidia (NVDA 6.18%). The high-flying stock is almost certainly going to be the best performer of the S&P 500 for 2023. It's been a truly remarkable year for Nvidia thanks to surging demand for its graphics process units (GPUs).
Don't automatically assume that this momentum will continue into the new year, though. Nvidia stock could face a tougher 2024 after two recent developments. Here's a look at each and why they could be a problem for Nvidia.
1. New AI chips on the block
Nvidia has commanded a dominant position in the AI chip market so far. There simply hasn't been much competition. However, that's changing.
Last week, Intel (INTC -9.20%) announced plans to launch its new Gaudi3 chip in 2024. Gaudi3 is specifically designed to run generative AI applications. It should compete head-to-head against Nvidia's H100, the current market leader in powering AI apps run on server farms.
Intel stated in a press release that it "has seen a rapid expansion of its Gaudi pipeline due to growing and proven performance advances, combined with highly competitive TCO [total cost of ownership] and pricing." The company believes that it will be able to increase its market share in the AI accelerator market next year thanks to the introduction of the Gaudi3 chip.
But that's not all. Intel is also launching its new Core Ultra chip for running AI apps on personal computers. CEO Pat Gelsinger said, "We've been seeing the excitement with generative AI, the star of the show for 2023." He added, "We think the AI PC will be the star of the show for the upcoming year."
2. Gemini's quiet diss
Alphabet's (GOOG 9.96%) (GOOGL 10.22%) announcement of its new Gemini large language models (LLM) on Dec. 6 deserved all the attention that it received. The most powerful version of the new LLM model, Gemini Ultra, beat the current state-of-the-art AI models on 30 of 32 benchmarks. It even outperformed human experts on the MMLU (massive multitask language understanding) test -- the first AI system to do so.
What didn't receive as much attention, though, was another new product. Google DeepMind CEO and co-founder Demis Hassabis revealed in a blog post the launch of Cloud TPU v5p. The new tensor processing unit (TPU) chip is specifically designed for training AI models. Hassabis stated that it's "the most powerful, efficient, and scalable TPU system to date."
Importantly, Google trained Gemini using its own TPUs. There was no mention of Nvidia's GPUs at all. The introduction of Cloud TPU v5p could signal a key advance in Google's AI chip technology.
Sure, Google remains closely connected with Nvidia. In August, the two companies announced an expansion of their partnership to make Nvidia's generative AI technology available to Google Cloud customers. However, it's clear that Google doesn't want to depend entirely on Nvidia.
The potential impact on Nvidia
Do Intel's launches of the Gaudi 3 and Core Ultra AI chips and Google's introduction of its Cloud TPU v5p mean that Nvidia is in dire and imminent trouble? No. There's no reason to think that Nvidia's GPUs won't remain the gold standard for AI apps for now.
However, investors are banking on Nvidia continuing to deliver tremendous growth over the next few years. Anything that disrupts that growth could weigh on Nvidia's share price.
Nvidia is subject to the laws of supply and demand. The company's soaring profits (and stock price) have been due to fast-growing demand for its GPUs, combined with a limited supply of the AI chips. The recent moves by Intel and Google could diminish the demand for Nvidia's GPUs to some extent.
Again, I don't expect Nvidia's momentum to be completely derailed as a result of these new chips. However, it's reasonable to anticipate that Nvidia could face a tougher slog in 2024 than it has in 2023. Don't look for the stock to come anywhere close to tripling (and more) as it has done this year.
