NVIDIA (NVDA, Financials) continues to lead the AI chip market despite competition from custom application-specific integrated circuits, according to Morgan Stanley.

With a quarterly income of $32 billion and a market capitalization of $3 trillion, NVIDIA far exceeds rivals such as Broadcom, with a $1.1 trillion market capitalization.

Spending $16 billion in R&D this year, NVIDIA is strengthening its market position. Particularly with its CUDA platform, the company's ongoing cycle of product development and software benefits provide a clear lead against less expensive ASIC substitutes.

Although ASICs like Google's Tensor Processing Units are less expensive—about $3,000 compared to NVIDIA's $20,000 H100—some of those savings are negated by their integration costs and software problems. With Morgan Stanley projecting that NVIDIA and AMD (AMD, Financials) would surpass ASIC rivals in 2025, NVIDIA's supremacy is projected to keep growing.

Commercial GPUs will dominate 90% of the market in 2024; NVIDIA leads at $98 billion in chip sales. Under direction from Broadcom, custom ASICs make only 10%. Morgan Stanley projects NVIDIA's expansion will last beyond 2025.

Citing its solid R&D, cost efficiency, and strong software ecosystem, Morgan Stanley remains optimistic on NVIDIA's long-term prospects despite concerns including U.S. export restrictions and a possible slowing down in AI investment by 2026.