NVIDIA Market Analysis: Custom Chip Competition from Google and Amazon

This analysis is based on a Reddit discussion [0] on November 6, 2025, questioning why NVIDIA stock wasn’t reacting negatively to scaled custom chip deployments from Google and Amazon, which could potentially represent significant revenue displacement for NVIDIA.

NVIDIA is currently trading at $187.48, down 3.96% for the day, but maintains a strong year-to-date gain of 35.51% [0]. The stock decline appears driven by broader market factors rather than specific concerns about custom chip competition, with recent analyst upgrades and continued bullish sentiment supporting the company despite price volatility [1].

• Project Rainier involves 500,000 Trainium2 chips deployed across multiple U.S. data centers, scaling to 1 million chips by year-end 2025 [2]
• Trainium2 represents a “multibillion-dollar business” with 150% quarter-over-quarter growth [2]
• Offers 30-40% better price-performance than GPU alternatives [3]

• Scales up to 9,216 chips per pod delivering approximately 42.5 exaflops [4]
• Google’s TPU business potentially valued at $900 billion according to analysts [5]
• TPUs are described as “the best alternative to NVIDIA” with the performance gap “closing significantly” [5]

Amazon explicitly states they will continue purchasing “very significant amounts” of NVIDIA hardware alongside custom silicon [2]. This suggests custom chips primarily serve hyperscale customers’ specific workloads rather than displacing NVIDIA across the broader market.

AI infrastructure demand is growing exponentially, creating a scenario where total addressable market expansion benefits all players. Custom chips may actually accelerate overall AI adoption, indirectly benefiting NVIDIA through market growth.

• CUDA software ecosystem remains the industry standard, creating significant switching costs
• Complete stack integration (hardware + software) provides competitive advantage
• Broad customer base extends beyond hyperscalers to include enterprise, research, and gaming segments

• Market cap: $4.56 trillion [0]
• Data center revenue: $115.19B (88.3% of total revenue) [0]
• Net profit margin: 52.41% [0]
• Analyst consensus: 73.4% Buy ratings with $235 consensus target [0]

The market’s assessment that custom silicon represents coexistence rather than pure replacement appears justified. While Amazon’s 500,000+ Trainium2 chips and Google’s advanced TPUs represent genuine competition, they’re primarily serving specific hyperscale use cases while NVIDIA continues to dominate the broader AI infrastructure market.

Key missing information includes:

1. Quantified Revenue Impact:
   No specific data on actual NVIDIA revenue displacement by custom chips
2. Customer Migration Patterns:
   Limited visibility on which customers are switching from NVIDIA to custom solutions
3. Long-term Market Share Evolution:
   Lack of consensus on custom chip market share trajectory

Key factors to watch include:

1. NVIDIA’s Next Earnings:
   Guidance on data center growth and customer mix changes
2. Custom Chip External Availability:
   Google reportedly began selling TPUs externally in September 2025 [5]
3. Enterprise Adoption Patterns:
   Whether mid-market customers follow hyperscale lead to custom silicon

• Significant reduction in NVIDIA purchases by major hyperscalers in favor of custom silicon
• Expansion of Google’s external TPU sales beyond current limited availability
• Enterprise customers beginning migration to custom alternatives at scale
• Further closing of performance gaps between custom chips and NVIDIA GPUs

• Continued AI infrastructure expansion creating growth opportunities for all players
• NVIDIA’s ecosystem advantages maintaining competitive positioning
• Potential for custom chips to accelerate overall AI market growth
• NVIDIA’s ability to adapt and innovate in response to competitive pressures

The market appears to be correctly pricing in the competitive threat from custom silicon deployments. While Amazon’s Trainium2 and Google’s TPU deployments are substantial and growing, they currently serve primarily hyperscale-specific workloads. NVIDIA maintains strong fundamentals with dominant market position, robust profit margins, and continued analyst confidence.

The coexistence model appears sustainable in the near-term, with hyperscalers maintaining significant NVIDIA purchases alongside custom silicon development. However, this competitive dynamic warrants continued monitoring as custom chip capabilities improve and external availability expands.

The current market reaction suggests investors view custom silicon as additive to overall AI infrastructure demand rather than purely displacing NVIDIA’s market position, a perspective supported by the continued strong fundamentals and growth trajectory of NVIDIA’s core business.