Microsoft Is Building Its Own Nvidia. Should Nvidia Owners Worry?

Imagine your best customer calling to say they've started making your product themselves.

That's roughly what Microsoft told Nvidia on Monday.

Microsoft said its homemade AI chips, called Maia, will become the main engine for running its AI products, like the Copilot assistant built into Word and Outlook, starting in 2027. It plans to install enough of them to draw several gigawatts of electricity. One gigawatt is about the output of a large power plant.

Investors took the hint:

• Microsoft (MSFT): +1.1%, to $541.15, its highest close this year
• Nvidia (NVDA): −1.3%, to $226.32
• AMD (AMD): −2.3%, to $594.24

Training vs. running: the part that matters

There are two big jobs in AI.

Training is teaching a model, like sending it to school. It happens once in a while, it's enormously expensive, and Nvidia's chips dominate it.

Running the model, which the industry calls inference, is everything after graduation: every question you type into a chatbot, every email Copilot drafts. It happens billions of times a day, and as more people use AI, it's where more and more of the computing goes.

Maia is built for that second job. Microsoft says its next version, the Maia 300, will get 40% more AI work out of each unit of electricity than systems built on graphics chips, the kind Nvidia sells. It didn't say which chip it compared against, so treat that number as a sales pitch until someone tests it.

Microsoft isn't the first

Google has been running much of its AI on its own chips for years. Amazon sells its own AI chips to cloud customers. Meta is building one too.

The reason is simple: Nvidia's chips are the best on the market, and priced like it. When you buy them by the hundreds of thousands, designing your own starts to look cheap.

Should you worry?

Not about this quarter. A few reasons:

• Microsoft is still a customer. It will keep buying Nvidia and AMD chips to train its models. Maia is for running them.
• It starts small. Analysts at Evercore ISI estimate Maia will be only about 10% of Microsoft's AI chip spending by early 2027.
• Demand is still huge. Even after Monday's dip, Nvidia is up about 21% this year.

The real risk is slower. Nvidia's enormous profits depend on having very few rivals. Every big customer that learns to make its own chips is one less customer that has to pay Nvidia's prices. That doesn't break Nvidia. It slowly squeezes it.

What it means for you

• If you own an S&P 500 or Nasdaq index fund, you own Microsoft and Nvidia. Their tug-of-war mostly evens out in your account.
• If you own Nvidia directly, this isn't a reason to sell. It is a reason not to let one stock become too big a share of your savings.
• The winners of a chip price war would be the companies buying chips, like Microsoft, Google and Amazon, because their AI gets cheaper to run.

What to watch

TSMC reports earnings on Thursday, Oct. 15. It manufactures chips for Nvidia and for the tech giants designing their own, so its orders show where AI spending is really headed. Then watch Microsoft's earnings later this month for any update on how fast Maia is rolling out.