Don’t look now, but the AI market just shifted — and Nvidia (NVDA 4.29%) investors are scared.

Bloomberg reports Meta (META +2.60%) is in talks to purchase Tensor Processing Units (TPUs) designed by Alphabet (GOOG +0.83%) (GOOGL +0.82%) for use in Meta’s artificial intelligence data centers — instead of buying Graphics Processing Units (GPUs) from Nvidia.

Alphabet stock is obviously up on the news, as is Meta stock — but Nvidia shares just fell 6.1% through 10:35 a.m. ET.

Image source: Getty Images.

Who benefits?

There are multiple ways to look at this story. Let’s see if we can cover them all.

From Alphabet’s perspective, this is unalloyed good news. Meta — one of its fiercest rivals in AI Large language models (LLMs) — is promising to pay cash-money to Alphabet to be able to continue competing with Alphabet (and OpenAI, and others).

From Meta’s perspective, this is also good news. On the one hand, yes, it’s sort of subsidizing a rival, which isn’t usually a great plan. On the other hand, though, Alphabet is presumably offering its TPUs to Meta at prices cheaper than what Nvidia charges for its GPUs. Assuming the chips’ performance is comparable, this will lower Meta’s costs and help Meta’s profits.

Nvidia

Today’s Change

(-4.29%) $-7.83

Current Price

$174.72

Is Nvidia stock a sell?

Last but not least, it’s time to consider what this means for Nvidia.

At first glance, this seems clearly bad news. Alphabet is morphing from an Nvidia customer for semiconductor chips, into an Nvidia rival, selling a competing product. But wait! One of Nvidia’s biggest problems these days is manufacturing enough chips to meet the high demand for its products. This means there’s excess demand for AI chips on the market.

And it may mean, even with competition from Google, Nvidia can still sell all the chips it can make, at whatever price the market will bear.