Tesla Developing Its Own AI Chip, Analyst Says Chipmakers Could Gain Manufacturing Contracts

What Happened

Tesla Inc TSLA CEO Elon Musk confirmed Thursday that the company was developing its own artificial intelligence chip for self-driving vehicles led by former Apple Inc. AAPL and Advanced Micro Devices, Inc. AMD engineer Jim Keller, according to Electrek.

Investors on Twitter suggested the report could be “really bad” or “awful news” for NVIDIA Corporation NVDA, but Tigress Financial analyst Ivan Feinseth reacted differently.

Why It's Important

Feinseth considers Tesla’s news an overall positive for Nvidia, Skyworks Solutions Inc SWKS and fellow chipmakers who stand to gain manufacturing contracts.

“I think more than likely what Tesla will do is say, ‘Here are the specs for the chip we want, and then who will make the chip?’” Feinseth told Benzinga. By his assessment, Tesla will design the chip and then collaborate on or outsource production rather than purchase or construct a new factory.

Even if Tesla does manufacture in-house, NVIDIA still has a market in competing automakers.

"I think Nivida has great tech, and even if Tesla develops AI chips internally, most others will not do that and rely on companies like NVDA to supply them high-performing chips," Loup Ventures analyst Austin Bohlig told Benzinga.

What's Next

Tesla’s involvement in the process may also inspire a greater swell in auto-related sales.

“The thing is that more chip design leads to more chip production,” Feinseth said. “Interest in AI self-driving chips drives more interest in AI self-driving chips, so the more focus that’s being made on it I think is positive for Skyworks and Nvidia.”

But Bohlig offered a caveat:

"Now if we start to hear this is a bigger trend and other OEMs bring the development in-house, we would need to reconsider," he said. "But chip development is not a core competency of Ford [and] GM. They will want to stick with what they are good with, and leave chip development to the experts."

At time of publication, Nvidia was trading up 1 percent at $193.84 while Skyworks was also up 1 percent at $97.56.

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