Key takeaways Nvidia shares dropped 4.4% on Tuesday, erasing nearly $200 billion in market value amid concerns over Google's AI chip competition. Meta is reportedly in talks to spend billions on Googl...
Nvidia experienced a significant market downturn on Tuesday as investors reacted to mounting evidence that Google is gaining competitive ground in the artificial intelligence chip sector.
The chipmaker's shares fell 4.4% after briefly dropping as much as 7%, wiping nearly $200 billion from its market capitalization.
The selloff was triggered by reports that Meta Platforms is considering a multi-billion-dollar shift toward Google's tensor processing units for its data centers.
According to The Information, Meta may begin using Google's TPUs in its facilities by 2027 and could rent the chips from Google Cloud as early as next year. The social media giant currently relies heavily on Nvidia's graphics processing units for its AI infrastructure.
The market reaction intensified following Google's release of Gemini 3, its latest large language model.
The system was trained entirely on Google's proprietary TPUs rather than Nvidia's industry-standard chips, representing what analysts describe as a watershed moment for the AI hardware market.
Mike O'Rourke, chief market strategist at Jones Trading, suggested the release of Gemini 3 "may prove to be a subtler but more important version of the DeepSeek disruption," referencing the Chinese AI startup whose emergence in January triggered sharp selloffs among U.S. tech companies, including Nvidia.
Google's TPUs, first introduced over a decade ago specifically for AI tasks, are now gaining traction beyond the company's internal operations.
The chips have already secured major external validation, with AI developer Anthropic committing to a multi-billion-dollar deal to use up to one million TPUs in the coming years.
The developments underscore a growing trend in which Nvidia's largest customers are simultaneously becoming its most significant competitive threats.
Meta is among the biggest spenders on AI infrastructure globally, with projected capital expenditures of $70 billion to $72 billion this year.
Gil Luria, head of technology research at D.A. Davidson, told CNBC that the competitive dynamics are shifting rapidly.
"There was some sense that [AMD] could be the number two [in the market] and now it's become clear that there may not be room for that," Luria said, noting that Google's TPU technology is proving highly competitive with Nvidia's offerings.
The ripple effects extended across the semiconductor sector.
Advanced Micro Devices saw its shares decline 6% on Tuesday, while chip designer Arm fell 4.2%.
Meanwhile, Alphabet shares rose 4.2% following a more than 6% rally on Monday, and Broadcom, which helps Google design its TPUs, gained more than 1% after an 11% surge the previous day.
In response to the market turbulence, a Google spokesperson emphasized the company's balanced approach to AI infrastructure.
"Google Cloud is experiencing accelerating demand for both our custom TPUs and NVIDIA GPUs; we are committed to supporting both, as we have for years," the spokesperson told CNBC.
Nvidia also pushed back against concerns about its competitive position. A company spokesperson stated on social media that the chipmaker remains "a generation ahead of the industry" and is "the only platform that runs every AI model and does it everywhere computing is done."
Chris Beauchamp, chief market analyst at IG, acknowledged Nvidia's continued strength while recognizing the shifting competitive terrain.
"Nvidia's dominant position is unlikely to be fundamentally threatened in the short term, but markets are all about forward expectations," Beauchamp said on Tuesday. "It certainly seems like Alphabet is poised to snatch market share away from Jensen Huang's empire."
The analyst added that the rotation in market leadership, while ultimately healthy, "can lead to some tricky moves underneath the surface.
" The decline in Nvidia shares weighed on the Nasdaq even as the Dow Jones, small-cap stocks, and European markets posted gains.
The market movements come amid ongoing debate about stretched technology valuations and the sustainability of massive AI infrastructure investments.
Companies building AI capabilities have been actively seeking to diversify their chip suppliers to reduce reliance on any single vendor.
Google launched its first-generation TPU in 2018, initially designing the chips for internal use in its cloud computing business.
The company has since released increasingly advanced versions optimized for AI workloads.
Industry experts note that, as customized chips, TPUs offer Google a potential advantage by providing customers with highly efficient products explicitly tailored for AI tasks.
If Meta proceeds with adopting TPUs at scale, it would represent a major validation of Google's technology and a potential challenge to Nvidia's market dominance.
The Information reported that Google is pitching its TPU technology to other major customers, including large financial institutions, in a move that could capture as much as 10% of Nvidia's annual revenue.
The share price movements reflect continued uncertainty about whether current AI spending levels represent sustainable growth or an overheated market.
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