Microsoft said on Thursday that it will provide powerful artificial intelligence (AI) chips from AMD to its cloud computing clients, posing a serious threat to Nvidia's dominant market share in processors.

The Build developer conference, which is scheduled for next week, will provide further information on this project. Microsoft will provide clusters of AMD's flagship MI300X AI CPUs through its Azure cloud computing service.

These chips are expected to compete with Nvidia's H100 graphics processing units (GPUs), which presently lead the market for AI processors for data centers and are in great demand.

With the ability to run and train big AI models, the MI300X processors provide users with a strong substitute for Nvidia's GPUs. At the Build conference, Microsoft will also provide a sneak peek at its upcoming Cobalt 100 custom CPUs in addition to the AMD offering.

Compared to previous processors based on Arm Holdings' technology, these processors are said to perform 40% better. These Cobalt processors have already been put to use by Snowflake and other businesses.

The integration of AMD's MI300X processors into Azure is a noteworthy development, as it tackles the difficulty of acquiring Nvidia's highly sought-after H100 GPUs. Companies frequently need to cluster numerous GPUs together to construct and operate large AI models since the amount of data and calculations needed exceeds the capabilities of a single chip.

AMD estimates that its AI chips will bring in $4 billion in sales this year, demonstrating the increasing need for and power of these CPUs. In addition, Microsoft's Azure cloud division offers access to its own AI processors, called Maia, expanding the range of choices accessible to clients looking for AI solutions.

AMD's MI300X chips and Intel's Cobalt 100 processors are examples of Microsoft's aim to broaden its AI hardware portfolio and strengthen its position as a market leader in cloud computing. Currently undergoing testing, the Cobalt 100 processors—which were first shown in November—power Microsoft Teams, the company's commercial messaging platform.

The battle in the cloud computing market will only get more intense as these processors aim to take on Amazon's own Graviton CPUs.