Nvidia stock falls 4% on report Meta will use Google AI chips

Nvidia shares fell on Tuesday after The Information reported that Meta is considering using chips designed by Google.

Shares of Nvidia fell as much as 7% before recovering to trade down 4.3% later in the day. Google parent Alphabet was 4.2% higher after a more than 6% rally on Monday.

On Monday, The Information reported that Meta is considering using Google’s tensor processing units, or TPUs, in its data centers in 2027. Meta may also rent TPUs from Google’s cloud unit next year, the publication reported.

“Google Cloud is experiencing accelerating demand for both our custom TPUs and NVIDIA GPUs; we are committed to supporting both, as we have for years,” a Google spokesperson told CNBC.

Google launched its first-generation TPU in 2018 and it was initially designed for its own internal use for its cloud computing business. Since then, Google has launched more advanced versions of its chip that are designed to handle artificial intelligence workloads.

TPUs are a customized chip and experts say this gives Google an advantage over rivals as it can offer customers a highly efficient product for AI.

If Meta uses the TPUs, it would be big win for Google and potential validation of the technology.

Shares of Broadcom, which helps Google design its TPUs, were up more than 1% on Tuesday after an 11% rise the day before.

Nvidia remains the market leader with its graphics processing units, GPUs, that have become the main piece of hardware underpinning the huge AI infrastructure build-out. While Nvidia’s dominance is unlikely to be dislodged in the near term, Google’s TPUs add further competition into the AI semiconductor market.

Shares of Advanced Micro Devices, previously seen as offering the most credible challenger to Nvidia’s GPUs, were trading 6% lower on Tuesday. Chip designer Arm’s shares fell 4.2%.

“There was some sense that [AMD] could be the number two [in the market] and now it’s become clear that there may not be room for that,” Gil Luria, head of technology research at D.A. Davidson, told CNBC.

Companies building AI infrastructure have been searching for a more diversified supply of chips to reduce reliance on Nvidia.

Meta is among the biggest spenders on AI infrastructure, with the company projecting its capital expenditures to stand between $70 billion and $72 billion this year.

The share price moves come amid continued debate around whether there is an “AI bubble” and stretched tech company valuations.

Nvidia has been central to the debate and the company last week reported a stronger-than-expected sales forecast for the current quarter but technology stocks fell after.