In a surprising move, Nvidia has signed a non‑exclusive license deal with Groq, a small startup that builds chips designed specifically for running AI models (inference). The agreement signals that Nvidia sees new competition and wants to protect its lead.
Why Nvidia Chose to Partner with Groq
For years Nvidia’s graphics processors (GPUs) have powered both the training and running of AI models. Their dominance helped the company’s revenue jump from $5.9 billion before ChatGPT to nearly ten times that amount in the latest quarter, with a 73% gross margin.
But while GPUs still dominate AI training, the market is shifting toward inference – the stage where models answer questions, generate images, or power chatbots. Specialized inference chips from rivals like Google’s TPU, Microsoft’s custom silicon, and Amazon’s AWS chips are gaining ground.
What Groq’s Chips Bring to the Table
Groq’s processors, called LPUs (Learning Processing Units), are built for fast, efficient inference. The founder of Groq previously worked on Google’s TPU, giving the startup deep expertise.
- Speed: Optimized for low‑latency AI responses.
- Efficiency: Lower power consumption compared with general‑purpose GPUs.
- Software: Comes with its own inference stack that can complement Nvidia’s long‑standing AI software ecosystem.
How the Deal Could Play Out
The partnership could lead to Nvidia servers that house both GPUs (for training) and LPUs (for inference). This mirrors how Meta kept Instagram separate but complementary to Facebook, expanding its user base while protecting its core business.
With access to Nvidia’s software tools, Groq may see broader adoption, while Nvidia gains a foothold in the fast‑growing inference space.
Potential Impact on Nvidia’s Profitability
Investors are watching the margin implications. Nvidia’s current 73% gross margin is unusually high for a chip maker. Adding lower‑margin inference chips to its product mix could compress those margins over time.
- Short‑term: Stock rose about 1.6% after the news.
- Medium‑term: Nvidia may safeguard revenue growth as inference demand rises.
- Long‑term: Mixed product mix could pressure the premium pricing power that fuels today’s high margins.
Takeaway for Retail Investors
For now, the market isn’t panicking. The deal appears defensive – Nvidia is buying time to adapt to a changing AI hardware landscape. If inference becomes the dominant AI workload, Nvidia’s involvement through Groq could be a smart way to stay relevant, even if it means a slower margin expansion.
Disclaimer
Remember, this is just analysis, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.