Nvidia to Shift From Chip Supplier to Diversified Compute Platform

Nvidia is the leading company in artificial intelligence (AI) today, and its role as the near-monopoly supplier of chips that train AI models may change significantly over the next five years.

The current business model relies heavily on selling powerful GPUs to a handful of giant cloud companies building AI. However, this mix is expected to broaden in important ways, with the market for running AI models, known as inference, likely dwarfing the market for training them.

Nvidia is also quietly building a software business on top of its hardware, which could make the company less dependent on any single customer group and lower its risk. This transformation may come from new markets, such as robots, factories, and self-driving cars that need Nvidia's chips to see and think, as well as sovereign AI, where entire countries build their own computing infrastructure.

However, there are also challenges ahead for Nvidia. The company's extraordinary profit margins may come down as competition intensifies, and the AI spending boom cannot climb straight up forever since chips are a cyclical business. This could make Nvidia a bigger, more diversified compute platform spanning inference, software, robotics, and global infrastructure in five years.

The real question for investors is whether Nvidia can broaden its moat faster than rivals erode it. While the company's ecosystem is deeply entrenched, owning the stock requires acknowledging that the company and the stock will not be the same as they are today.