Google's parent company Alphabet is in talks to buy another major technology company, Meta, which makes a special semiconductor chip for itself. The news that Meta is going to buy Google's chip for billions of dollars has sent shockwaves through the technology market. The incident indicates that Google's competition with Nvidia, which has been dominating the semiconductor sector, is increasing, according to international media outlets including Reuters.

Meta is also discussing leasing a special chip used in Google Cloud. It is understood that Meta plans to buy the chip from Google early next year and use it on lease. Meta is going to purchase the fourth version of Tensor Processing Units (TPU), which Google has made for artificial intelligence (AI)-related tasks. According to the news of the ‘The Information’ portal, Google has also discussed selling its chip for the first time and this is a very big deal. 

Until now, Google had been using TPU only in its own data centers. Now, when this chip starts selling to other companies, it is being analyzed that it will increase Google’s chip market size and Google will now come into direct competition with companies like Nvidia. This is expected to affect Nvidia’s share of the billion-dollar AI market. According to Reuters, some Google Cloud employees have claimed that Google’s strategy will cut Nvidia’s annual revenue by 10 percent.

Meta, on the other hand, is adopting a dual strategy regarding chips. On the one hand, it is looking to partner with Google, and on the other hand, it seems to be trying to make its own separate chip. According to an analysis by The Business Standard, Meta wants to reduce its dependence on Nvidia for graphic processing units (GPUs) and break Nvidia's dominance in AI. Experts estimate that if Meta were to buy TPU from Google and diversify its graphics and other infrastructure, it could save $4 to $7 billion annually. 

Nvidia, a leader in AI chip manufacturing, has been hit in the early stages by Google's market entry and the Google-Meta partnership. Nvidia's share price fell by 3.2 percent after the news broke on Tuesday. Alphabet's share price rose by 4 percent, taking the company's market valuation to $4 trillion. Nvidia is the only company to reach a market cap of $4 trillion so far. Microsoft and Apple are also close in the race for $4 trillion. Meta is a big customer for chipmakers, with Meta spending $72 billion on chip purchases this year alone. 

Aditya Soni and Rajbir Singh Pradesh in Reuters say it won't be easy for Google to break Nvidia's dominance in the chip manufacturing sector. "If Google is to break Nvidia's market dominance, it will have to replace the network the company has built in the market over two decades, which is very difficult," they wrote. "More than 4 million developers around the world use Nvidia's CUDA software platform to build AI and other applications."