According to Reuters reporting, Nvidia (NVDA) seeks to build out a new business unit for custom-designed AI chips. Yahoo Finance Tech Editor Dan Howley explains the details from this report and the widespread opportunities this could provide for Nvidia.

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: All right. Well, NVIDIA reportedly aiming to capture a growing market here for custom AI chips with a new business unit. Yahoo Finance's Dan Howley here with the details. Dan, we're looking at the stock moving to the upside, up just about 2%.

DAN HOWLEY: That's right, Seana, nearing Amazon's market value here. Well, past the $1 trillion mark. This is an exclusive reporting from Reuters. Basically, they say that they've spoken to some folks and that Nvidia is moving into the custom chip space. Now, let me just kind of break down what that would mean.

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Nvidia currently sells its H100, its high-end chip, to big cloud companies, AI companies, things like that. That is basically think of it as like a Lamborghini, right? It's probably priced alongside a Lamborghini. It's meant to be this massive machine that's capable of doing tons and tons of processes constantly, simultaneously, right? So, that's the beauty of a GPU.

The problem is, like a Lamborghini, it eats through energy. So, a lot of companies, Microsoft, Amazon, Meta, you know, Alphabet, they're building their own custom chips. They're called ASICs. And essentially, what they are is just specified chips designed for specific needs. So you have these larger chips that Nvidia has and they're kind of all purpose for GPUs and AI, whereas ASICs might meet a specific need for, you know, that's different for Microsoft. That's different for Meta.

Those companies are increasingly looking at those. They're increasingly using those. And the fear is, at least for Nvidia, that that will eventually eat into their market share, as well as their total addressable market, right? Because if you have a company that's building its own chips and they're specified for their needs, then why do they have to go and buy the Lamborghinis that Nvidia offers?

So now it looks like Nvidia is trying to work with these companies and say, hey, we can do that, too. And we can do it better than what you guys can do because we already did the big stuff on the Lamborghini side of things. And so that seems to be what the company is going for here, where they'll be able to have these more customizable chips. And the big deal as I said, is they use less energy.