Nvidia’s Huang says he’s surprised AMD offered OpenAI 10% of company in ‘clever’ deal
News Summary
Nvidia CEO Jensen Huang expressed surprise at AMD's deal with OpenAI, where OpenAI will receive warrants for up to 10% of AMD's shares in exchange for committing to purchase 6 gigawatts worth of chips, including its forthcoming MI450 series. Huang called the transaction “imaginative, unique and surprising,” especially given AMD’s excitement for its next-generation product, noting his astonishment that they would give away 10% of the company before it was even built. Following the announcement, AMD shares surged, rising 43% this week and 11% on Wednesday. Nvidia shares rose 2% on Wednesday after Huang's comments. Nvidia itself previously announced plans to invest up to $100 billion in OpenAI over the next decade, with OpenAI committing to deploy Nvidia systems requiring 10 gigawatts of power. Huang clarified that Nvidia’s investment is “very different” as it allows direct sales to the ChatGPT creator. He also indicated that OpenAI doesn't yet have the money for Nvidia's investment and will need to raise it through revenues, equity, or debt. Separately, Huang confirmed Nvidia’s involvement in xAI’s latest funding round, where Elon Musk’s AI startup is reportedly seeking to raise about $20 billion, with Nvidia set to invest $2 billion. Huang also praised Nvidia's investments in companies like AI data center operator CoreWeave, considering them
Background
The artificial intelligence (AI) chip market is intensely competitive, with Nvidia, the long-standing dominant player, facing challenges from Advanced Micro Devices (AMD) and cloud providers developing their own chips. Amidst the explosive growth in AI computing demand, major tech companies are scrambling to secure chip supply and invest in AI infrastructure. OpenAI, as a leading AI research and development company, has immense computing power requirements, making it a critical partner for chip manufacturers. Innovative deal structures, such as equity incentives, allow chip suppliers not only to secure large orders but also to deeply tie into OpenAI's future growth. Huang's comments underscore the complexity and diversity of capital and strategic collaborations within the AI sector, as well as the fierce competition among players for technology, market share, and ecosystem development.
In-Depth AI Insights
What are the deeper motivations and potential risks behind AMD's equity offering to OpenAI? - AMD's primary motivation is to secure a long-term commitment from OpenAI through equity, thereby gaining a significant foothold in the AI chip market and challenging Nvidia's dominance. This goes beyond mere chip sales; it's about deeply integrating with OpenAI's future by ensuring large-scale deployment of its MI450 series chips through an equity tie-up. - The risks lie in OpenAI's valuation and its actual capacity to deploy AMD's chips as expected. If OpenAI fails to meet deployment milestones or encounters issues with its own valuation, AMD's equity dilution might not yield the anticipated returns. Furthermore, the 10% equity dilution represents an early realization of future growth potential for existing shareholders, whose true value will only be validated over time. How do Nvidia's investments in OpenAI and xAI strategically differ from AMD's deal, and what market strategy does this reflect? - Nvidia's strategy involves direct investment and sales. It leverages equity investments to deepen partnerships with key AI clients while simultaneously securing market share through direct sales of its established and leading GPU products. Huang emphasized that Nvidia's investment allows direct sales to OpenAI, bypassing the complexities that might arise from an equity swap. - This difference reflects Nvidia's confidence in its market leadership and resource advantages. It doesn't need to dilute its equity to secure orders, instead using its technological superiority and capital strength to reinforce its ecosystem. The investment in xAI further extends its influence among potentially disruptive AI companies, particularly given Elon Musk's impact, representing a high-investment, high-return ecosystem positioning strategy. What do concerns about the 'circular nature' of AI infrastructure deals imply for investors? - The