Why a Tech Billionaire Is Betting Big on Microsoft Over Nvidia: The AI Chip Wars Are Getting Complicated

Billionaire Peter Thiel, the co-founder of Palantir Technologies, just made a bold portfolio move through his hedge fund Thiel Macro. During the third quarter, he liquidated his entire Nvidia stake and pivoted into Microsoft, signaling a major shift in how savvy investors are positioning themselves in the AI boom.

The Competitive Pressure on Nvidia’s GPU Dominance

Nvidia has ruled the AI accelerator market with an iron fist, commanding over 80% of revenue share in this space. The company’s graphics processing units (GPUs) have become the de facto standard for powering data center workloads, especially those running artificial intelligence applications.

But the moat is cracking. Advanced Micro Devices’ MI350 chips recently delivered competitive results at MLPerf benchmark tests, which standardize performance measurements for AI systems. AMD is planning to launch even more powerful MI450 GPUs, and OpenAI has already committed to deploying MI450 chips by late 2026—a clear sign that alternatives to Nvidia are becoming viable.

The bigger threat, however, comes from hyperscalers themselves. Alphabet’s Google, Amazon, Meta Platforms, Microsoft, and OpenAI have all invested heavily in custom-designed AI accelerators to reduce their reliance on Nvidia. On the surface, this looks like a serious problem for Nvidia’s long-term dominance.

Why Custom Chips Haven’t Cracked the Code Yet

Here’s where it gets interesting: custom chips have a fatal weakness that most investors overlook. They lack the software ecosystem that Nvidia has spent nearly two decades building.

Nvidia’s CUDA platform is virtually unmatched—it’s an entire universe of pretrained models, application frameworks, code libraries, and developer tools. For companies building custom chips from scratch, the software gap means they have to rebuild everything themselves. These hidden development costs often make custom chips more expensive than Nvidia GPUs in real-world deployment scenarios.

This structural advantage is why analysts broadly forecast Nvidia will retain 70% to 90% of the AI accelerator market share, which is expected to expand at 29% annually through 2033. With Wall Street projecting Nvidia’s earnings to grow at 37% per year over the next three years, the current valuation of 44 times earnings actually looks reasonably attractive for such a dominant player.

Microsoft’s Dual Advantage in the AI Era

So why did Peter Thiel make the switch? The answer lies in how Microsoft is uniquely positioned to monetize artificial intelligence across multiple revenue streams.

Microsoft is the world’s largest enterprise software company and operates the second-largest public cloud infrastructure. It’s weaponizing AI by embedding generative AI copilots directly into Microsoft 365 products—adoption is accelerating faster than any other new product in the suite. CEO Satya Nadella recently revealed that 90% of Fortune 500 companies are already using the company’s AI assistant.

In the cloud segment, Microsoft’s sales growth has decelerated to 28% as the company faces capacity constraints on its data centers. But here’s the upside: Microsoft plans to double its data center footprint over the next two years, meaning it’s positioned to gain significant market share as supply catches up with demand.

The Valuation Picture

Wall Street expects Microsoft’s earnings to grow at 14% annually over the next three years, translating to a current valuation of 34 times earnings. Some might call that expensive, but context matters.

Enterprise software and cloud spending are projected to expand at 12% and 20% annually through 2030, respectively. At these growth rates, Microsoft’s price-to-earnings-to-growth ratio of 2.4 is actually below its three-year average of 2.6 and five-year average of 2.5. In other words, Microsoft’s stock is trading at a modest discount to its historical valuation multiples—a rare opportunity for a company of its scale.

Unlike Nvidia, which commands a premium valuation reflecting near-monopoly status, Microsoft offers investors a reasonable entry point to capture the AI revolution through proven software and cloud monetization channels. That’s likely the calculation driving Peter Thiel’s latest move.

The AI chip wars are intensifying, but winners aren’t always the companies making the hardware—sometimes they’re the ones controlling the platforms.