Nvidia’s Biggest Customer Just Struck a Massive Deal With Its Fiercest Rival - Here’s Why It Matters

Tech giants are shifting alliances—and Nvidia just got a wake-up call.

The Chip Wars Escalate

One of Nvidia's cornerstone clients just inked a blockbuster partnership with their arch-competitor. No names dropped yet, but the move signals a major power play in the semiconductor space. Supply chains are getting rewritten, and loyalty is clearly taking a backseat to performance and pricing.

Market Shakeup Incoming

This isn't just a supplier switch—it's a strategic pivot that could ripple across AI, data centers, and next-gen computing. When big players diversify their chip sources, it means more competition, faster innovation, and honestly? Probably some juicy volatility for traders who love drama.

Finance folks are already placing bets—because nothing gets a portfolio pumping like a little corporate betrayal dressed up as 'optimization.'

Image source: Getty Images.

The major risk facing Nvidia

While Nvidia has seen its sales boom as a result of big tech companies spending whatever it takes to stay at the forefront of AI development, that has resulted in just a handful of customers making up the vast majority of its revenue. Nvidia revealed that 39% of its revenue in the second quarter came from just two direct customers, and 85% came from six customers.

Of course, there are only so many companies in a position to spend the capital necessary to build out data centers. Many of those companies, like, have dozens of big customers paying for access to those Nvidia chips through their cloud computing platforms. As such, Nvidia's customer concentration risk isn't quite that big. Still, it's a significant risk factor investors need to consider.

That came to the forefront recently because OpenAI, one of the biggest companies using Nvidia's chips, is reportedly working on a custom AI accelerator chip with(AVGO -2.69%). The report coincides with Broadcom's disclosure that it has a new qualified custom AI chip customer, and it's already secured $10 billion of orders.

If OpenAI is indeed Broadcom's new customer, that represents a major shift for the company. The generative AI leader is at the forefront of The Stargate Project, which is investing $500 billion between 2025 and 2028 in AI infrastructure. Its list of technology partners in the announcement notably included Nvidia, but not Broadcom.

The shift is already underway

OpenAI might not be the only company looking to use more custom silicon solutions and reduce its reliance on Nvidia. Broadcom CEO Hock Tan said it continues to gain share with its three other custom AI chip customers, which include,, and ByteDance. Additionally, Microsoft is reportedly planning a big step-up in usage for its next-generation custom accelerator, which could result in $10 billion to $12 billion in orders in 2027, according to Fubon Research.

The news also follows a recent deal that OpenAI signed with Alphabet's Google Cloud to use its Tensor Processing Units (TPU), also designed by Broadcom. Google recently published research estimating its average energy expenditure for a text-based AI prompt was just 0.24 watt-hours, which it described as "substantially lower than many public estimates." It also noted a 33-times improvement in efficiency over the past year. Part of the reason the researchers gave for its efficiency is Google's TPU chip. Considering OpenAI's scale, it could stand to save a lot by moving off Nvidia's architecture.

The question for investors is this: Has the market fully priced in the potential share loss Nvidia faces and the potential gains at other chipmakers? Nvidia shares now trade at about 38 times forward earnings estimates, which is still above its average price since early 2023. That's despite the fact that Nvidia's unlikely to experience a continuation of earnings growth like it saw last year and the year before.

But that doesn't mean Broadcom is any bargain right now, either. Shares have climbed above 50 times earnings on the news that it won a big new contract. And while custom AI chips are a big driver of revenue and profits, it's important to remember that only about half of its current semiconductor sales are related to AI, and it has a relatively mature software business as well. Over time, AI spending will have a greater influence on Broadcom's overall results, but right now, it's valued as if all of its revenue comes from AI-related spend.

As such, both chipmakers look expensive right now. If you had to pick one, the upside looks stronger for Broadcom than Nvidia despite the market valuation. Still, there are plenty of other AI stocks with more compelling prices for investors to consider.