Nvidia (NVDA) shares fell on Monday after Microsoft (MSFT) announced plans to ramp up production of its own artificial intelligence chip, calling the initiative its "biggest bet yet" on custom silicon.
Nvidia stock was down around 1.60%, while Microsoft shares gained close to 1.25%.
The broader market was mixed, with the Dow Jones Industrial Average rising 0.44%, the S&P 500 trading largely flat and the Nasdaq Composite declining roughly 0.30% at around 11:30 ET.
Microsoft aims to cut reliance on Nvidia
Microsoft announced Monday that it would ramp up the use of its next-generation custom AI chip, Maia 300, to support its internal AI services.
Production of the chip is scheduled to begin next year.
"Today we are announcing our biggest bet yet on our own silicon. Starting next calendar year, we will scale our Maia family to multi-gigawatt deployments, making it the primary inference system for our own product and services," Microsoft Chairman and CEO Satya Nadella announced on X.
The initiative is aimed at making Microsoft's own chips a more prominent part of its AI infrastructure, potentially reducing its reliance on Nvidia for computing hardware.
In an apparent dig at Nvidia, Microsoft also highlighted the efficiency of its upcoming chip, saying Maia 300 would deliver 40% more tokens per megawatt than leading GPU-based systems.
The measure of tokens per megawatt indicates how much AI processing can be performed for a given amount of power.
The announcement comes as other technology giants, including Amazon (AMZN), Google (GOOGL) and Meta (META), aggressively develop custom AI chips to reduce their dependence on Nvidia.
With Microsoft joining the effort, Nvidia faces another potential challenge as some of its largest customers work to build their own alternatives.
The extent to which these chips will replace purchases from Nvidia remains an important consideration for investors.
Memory chip stocks face broader sell-off
Nvidia was not the only chipmaker under pressure Monday.
Chipmakers, especially memory stocks, declined in a broader sector sell-off that extended to South Korea.
SanDisk (SNDK) fell close to 6.5%, and Micron (MU) fell roughly 4%, while Intel (INTC) declined more than 3%.
AMD, Nvidia's biggest competitor, also traded lower by 3.4%. South Korean memory chipmakers SK Hynix (SKHY) and Samsung Electronics declined as well.
The catalyst was Chinese memory maker ChangXin Memory Technologies (CXMT), which reported significant progress in a new memory cell design aimed at increasing storage density.
CXMT plans to introduce a server memory product based on the design by the end of this year. The world's leading DRAM producers are also working on the technology.
TSMC earnings important for Nvidia's investors
Investors are also looking ahead to Taiwan Semiconductor Manufacturing Co.'s (TSMC) quarterly results, scheduled for Thursday.
The company is expected to deliver its sixth consecutive quarter of record profit.
TSMC is particularly important to Nvidia because it manufactures the company's leading processors and is part of the advanced-packaging supply chain that has constrained AI chip output.
A strong earnings performance from TSMC would strengthen the case that demand for Nvidia's processors remains resilient, even as major customers invest in custom alternatives.
For Nvidia investors, the coming days will bring two important developments to assess: Microsoft's plans to expand its own AI chip program and TSMC's latest results, which could offer further insight into the strength of demand across the AI semiconductor supply chain.
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