A key component of NVIDIA's market dominance is its status as the single largest buyer (a monopsony) for High-Bandwidth Memory (HBM), a critical part of modern GPUs. This control over a finite supply chain resource creates a major bottleneck for any potential competitor, including hyperscalers.
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By funding and backstopping CoreWeave, which exclusively uses its GPUs, NVIDIA establishes its hardware as the default for the AI cloud. This gives NVIDIA leverage over major customers like Microsoft and Amazon, who are developing their own chips. It makes switching to proprietary silicon more difficult, creating a competitive moat based on market structure, not just technology.
Large tech companies are buying up compute from smaller cloud providers not for immediate need, but as a defensive strategy. By hoarding scarce GPU capacity, they prevent competitors from accessing critical resources, effectively cornering the market and stifling innovation from rivals.
Google training its top model, Gemini 3 Pro, on its own TPUs demonstrates a viable alternative to NVIDIA's chips. However, because Google does not sell its TPUs, NVIDIA remains the only seller for every other company, effectively maintaining monopoly pricing power over the rest of the market.
NVIDIA's vendor financing isn't a sign of bubble dynamics but a calculated strategy to build a controlled ecosystem, similar to Standard Oil. By funding partners who use its chips, NVIDIA prevents them from becoming competitors and counters the full-stack ambitions of rivals like Google, ensuring its central role in the AI supply chain.
In a power-constrained world, total cost of ownership is dominated by the revenue a data center can generate per watt. A superior NVIDIA system producing multiples more revenue makes the hardware cost irrelevant. A competitor's chip would be rejected even if free due to the high opportunity cost.
NVIDIA's annual product cadence serves as a powerful competitive moat. By providing a multi-year roadmap, it forces the supply chain (HBM, CoWoS) to commit capacity far in advance, effectively locking out smaller rivals and ensuring supply for its largest customers' massive build-outs.
Major AI labs aren't just evaluating Google's TPUs for technical merit; they are using the mere threat of adopting a viable alternative to extract significant concessions from Nvidia. This strategic leverage forces Nvidia to offer better pricing, priority access, or other favorable terms to maintain its market dominance.
The current AI landscape mirrors the historic Windows-Intel duopoly. OpenAI is the new Microsoft, controlling the user-facing software layer, while NVIDIA acts as the new Intel, dominating essential chip infrastructure. This parallel suggests a long-term power concentration is forming.
In five years, NVIDIA may still command over 50% of AI chip revenue while shipping a minority of total chips. Its powerful brand will allow it to charge premium prices that few competitors can match, maintaining financial dominance even as the market diversifies with lower-cost alternatives.
NVIDIA's primary business risk isn't competition, but extreme customer concentration. Its top 4-5 customers represent ~80% of revenue. Each has a multi-billion dollar incentive to develop their own chips to reclaim NVIDIA's high gross margins, a threat most businesses don't face.
