Companies such as Intel and Nvidia have long dominated the design and manufacture of semiconductor chips, but they are now facing competition from their own customers. Amazon, Google and Microsoft, all of which have seen strong growth in cloud computing, are looking to create their own chips to ensure better performance and lower costs. Amazon, for example, debuted a chip intended to speed up AI algorithms. Traditional chip manufacturers are creating specialized processors to retain their long-time customers.

The Wall Street Journal reports that another factor is that “business customers also are showing an increased appetite for analyzing the data they gather on their products and customers, fueling demand for artificial intelligence tools to make sense of all that information.” Google was the first to the party, debuting an AI processor in 2016, and Microsoft followed, by investing “in chip designs, including a programmable chip to handle AI and another that enhances security.” According to a source, Microsoft is now developing a central processor.

Companies are also driven by “a growing sense that Moore’s Law — the sector’s fundamental assumption about the steady improvement in chip performance — is losing relevance.” “Moore’s Law has been around for 55 years, and this is the first time it’s slowed down very materially,” said Google cloud unit vice president and engineering fellow Partha Ranganathan.

ARK Investment Management analyst James Wang also pointed out that, “whereas Intel in the 1990s was an order of magnitude larger than all their customers, now the customer has superior scale over the supplier.” “As a result, they have more capital and more expertise to take components in-house,” he said. Alphabet, Amazon and Microsoft “each top $1 trillion in. market valuation,” whereas Nvidia, “now the largest U.S. chip maker by market cap, has a value of $330 billion, and Intel is at $207 billion.”

With even “small improvements in performance and minute reductions in the cost of powering and cooling chips” important to Big Tech companies, it’s no surprise that even companies like Facebook are looking into the idea of developing its own chips.

Amazon Web Services vice president David Brown said that, “making its own processors was an obvious choice for Amazon given the performance gains it could achieve by dropping compatibility with older software and other standard features of Intel chips that big data center operators don’t need.” “We were able to build a [chip] that’s optimized for the cloud, so we were able to remove a lot of stuff that’s just not needed,” he said.

Semiconductor industry analyst Linley Gwennap reported that, “so far, the lost business for traditional chip makers has been modest … [with] the market share of all custom-made, Arm-based central processors … less than 1 percent.” He added that Google’s AI chips comprise “at least 10 percent of all AI chips … [but] Intel still supplies the vast majority of CPUs that go into data centers.”

Intel said about 60 percent of its server central processors for large data centers are customized and it also bought Israel-based Habana Labs for its AI training chips. Nvidia agreed to buy Arm and is optimizing chips for its biggest customers.