Google unveiled its latest proprietary chip, Axion, demonstrating a willingness to reduce reliance on major chipmakers and bolster its position in the competitive AI landscape. Axion is tailored to manage vast datasets crucial for AI applications and can be grouped into clusters of thousands of chips to enhance performance significantly. According to Google, Axion CPUs outperform existing 'general-purpose' chips by about 30%, a move aimed at supporting AI applications within its data centres. Unlike chips aimed at specific business segments, Axion marks Google's first foray into AI-centric chips for data centre operations.

While customers of Alphabet's subsidiary will access Axion through Google's cloud services later this year, the chip won't be directly purchasable. Google's vice president, Amin Vahdat, who oversees proprietary chips, emphasised a collaborative approach, avoiding direct competition with longtime partners like Intel and Nvidia. Vahdat views Google's entry into the chip market as an opportunity to grow the industry collectively, aiming to expand the market rather than capture a share directly from competitors.

In response to Google's announcement, semiconductor giants like Intel and Nvidia are intensifying their AI chip offerings. Intel recently introduced Gaudi 3, which is expected to be available by the third quarter, focusing on AI applications like training large language models such as ChatGPT. On the other hand, Nvidia plans to launch its latest generation of its H100 chip later this year. Despite Nvidia's stock decline following Google's chip reveal, the company has seen substantial growth driven by demand for its powerful chips, now facing heightened competition from rivals like Google in the AI chip market.

Following the news of Axion, Alphabet's stock rose by 2.4% initially, reflecting investor optimism about Google's strategic move into AI chips. However, gains moderated later in the day, with Alphabet's stock closing up 1.28% at approximately$158. Google's entry into the chip market signals a pivotal shift in its AI strategy, poised to influence the broader semiconductor landscape and competition among major players like Intel and Nvidia.