Nvidia Faces New Competition as Cerebras Systems Challenges AI Dominance
There’s no question that Nvidia (NASDAQ: NVDA) has been the principal beneficiary of recent advances in artificial intelligence (AI). The company’s graphics processing units (GPUs) quickly became the gold standard for generative AI, capturing a stunning 92% of the data center GPU market, according to market researcher IoT Analytics. Nvidia has parlayed that dominance into five consecutive quarters of triple-digit year-over-year sales and profit growth.
Many competitors have tried to keep up with the company’s relentless pace of innovation, but none have succeeded. Just this year, Nvidia revised its product release strategy from two years to every year, making it even tougher for rivals to compete.
However, a newcomer in the AI marketplace is making waves and could be the first legitimate competition Nvidia has faced.
Image source: Getty Images.
Introducing the Challenger
Cerebras Systems, founded in 2016, is gaining attention as a possible contender in the AI sector. The company asserts that “AI is the most transformative technology of our generation.”
Cerebras created the Wafer-Scale Engine (WSE) — a large semiconductor that uses a unique approach to boost AI performance. The WSE features 4 trillion transistors, 900,000 compute cores, and 44 gigabytes of Static Random Access Memory (SRAM) integrated into a single chip.
This innovative design minimizes latency, reducing delays in data transmission. Cerebras touts its third-generation WSE as “the world’s fastest commercially available AI training and inference solution.” In August, the company claimed to have achieved “the world’s fastest AI inference,” which it says is 20 times faster than Nvidia’s GPU-based solutions, all at a lower cost.
A recent press release from Cerebras made headlines as it announced a tripling of its “industry-leading inference performance, setting a new all-time record.” Tests with Llama 3.2, a recent generative AI model from Meta Platforms, reportedly showed performance 16 times faster than any known GPU solution and 68 times faster than hyperscale clouds.
Cerebras: A Threat to Nvidia?
While there is some overlap between Nvidia’s and Cerebras’ AI products, it’s crucial to consider the broader context of their competition.
Nvidia’s chips have a legacy that spans 25 years, proving reliable across various applications like video gaming, data centers, early AI technologies, and now generative AI.
Nvidia’s business model extends beyond chips; the company has developed software, switches, and complete plug-and-play systems designed to optimize performance. Furthermore, Nvidia is well-integrated into the enterprise market, whereas Cerebras is still relatively new. This established ecosystem makes Nvidia’s solutions easier for businesses to adopt.
This presents a challenge for Cerebras, as potential customers will likely need to adapt their systems to utilize its technology. Significant switching costs may deter customers from moving away from Nvidia’s established products. Companies may hesitate to invest heavily in new, untested technology as well.
The disparity in customer bases also raises important financial considerations. Nvidia’s clientele includes many of the world’s most prominent companies, generating an estimated 46% of its revenue from just four clients. While Nvidia does not disclose their identities, it is widely believed these companies include Alphabet, Amazon, Meta Platforms, and Microsoft.
In contrast, Cerebras generated 83% of its 2023 revenue from a single customer — G42 from the United Arab Emirates, which accounted for 87% of its sales in the first half of this year. Any change in their relationship could create challenges for Cerebras, especially given its limited customer base.
Additionally, G42’s connections to Chinese military companies and state entities have raised red flags among U.S. lawmakers, potentially affecting Cerebras’ business dealings and future growth prospects.
Big Picture Considerations
While Cerebras presents a promising solution that could evolve into serious competition for Nvidia, several obstacles remain before it can pose a substantial challenge.
The company will need to substantiate its ambitious claims over time. Ultimately, it will be customer demand that will determine if Cerebras can genuinely compete with Nvidia.
For now, Nvidia maintains its status as a leader in the AI sector. Its shares trade at approximately 34 times next year’s predicted sales, reflecting a strong history of performance and a secure market position.
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