Why Nvidia's $100 billion investment in OpenAI signals a major transformation
By Britney Ngugen
‘Nvidia isn’t just selling hardware anymore,’ one expert says. The company is increasingly moving to be an equity partner with other AI companies.
Nvidia CEO Jensen Huang said on Monday that the company plans to deploy 10 gigawatts of power to support OpenAI.
Nvidia Corp. is preparing to deploy millions of its graphics processing units in artificial-intelligence data centers as part of its latest multibillion-dollar investment, signaling a further transformation in how the company does business and approaches its leadership role in the AI wave.
The chip maker said Monday that it intends to support OpenAI’s next-generation AI infrastructure for training and running upcoming models by providing at least 10 gigawatts of its systems. That translates to millions of its chips, according to the company.
Nvidia (NVDA) will invest up to $100 billion in the AI startup as its systems are rolled out, including for data-center and power capacity, it said. The investment will be made progressively following the deployment of each gigawatt. The details of what it is calling a strategic partnership have yet to be finalized, Nvidia said, but the companies are targeting the first phase to come online during the second half of next year using the chip maker’s upcoming Rubin AI platform.
OpenAI Chief Executive Sam Altman has been vocal about OpenAI’s progress being “slowed by the lack of adequate infrastructure,” Greg Halter, director of research at Carnegie Investment Counsel, told MarketWatch. At the same time, there have been concerns about a potential AI bubble as more investments are made in the space.
“Nvidia’s investment signals that the need for AI infrastructure is real and still expanding,” Halter said in emailed comments.
The OpenAI announcement comes just days after Nvidia said it would invest $5 billion in Intel Corp. (INTC) while striking a partnership with that company as well.
See more: Intel’s stock is soaring. Here’s why Nvidia is investing $5 billion in the chip maker.
The timing of the latest deal suggests Nvidia is “diversifying both geographically (supply chain) and strategically (across the AI value chain). This looks more like infrastructure building than bubble behavior,” David Bader, the director of the Institute for Data Science at the New Jersey Institute of Technology, said in emailed comments to MarketWatch.
“This partnership represents the maturation of AI infrastructure as a legitimate asset class,” he added. “We’re witnessing the formation of vertical integration in the AI stack - from chips to training to deployment. Nvidia isn’t just selling hardware anymore; they’re becoming equity partners in the AI economy they’re enabling.”
Under the partnership, OpenAI is using Nvidia as its “preferred strategic compute and networking partner for its AI factory growth plans.” Both companies will “co-optimize their roadmaps” for OpenAI’s AI software and Nvidia’s software and hardware.
Demand for computing power “is going through the roof” for OpenAI’s ChatGPT, Nvidia Chief Executive Jensen Huang said during a Monday appearance on CNBC’s “Halftime Report.” “This partnership is about building an AI infrastructure that enables AI to go from the labs into the world.”
Altman also appeared on CNBC, according to a transcript that was shared with MarketWatch, and said without the infrastructure being outlined in the deal, OpenAI wouldn’t be able to provide its services.
“We can’t keep making better models,” Altman said. “And now that we really see what’s on the near-term horizon of how good the models are getting, the new use cases that are being enabled, what people want to do, this is like the fuel that we need to drive improvement, to drive better models, to drive revenue, everything.”
Altman also addressed OpenAI’s partner Microsoft (MSFT), and said that it and Nvidia are “passive investors,” while the startup’s nonprofit and board remain in control of the company.
Shares of Nvidia rose 3.9% on Monday following the announcement, closing at a new all-time high of $183.61, according to Dow Jones Market Data.
The news has been good for picks-and-shovels companies too, Halter pointed out, noting positive moves for Vertiv Holdings Co. (VRT) which gained 5.8%, and GE Vernova Inc. (GEV) which rose 3.2%.
Despite expectations on Wall Street for Nvidia to “invest downward into AI factories,” David Wagner, head of equity at Aptus Capital Advisors, told MarketWatch the “announcement is much earlier than many would have expected.”
Now, Wagner said that investors will be waiting to see how the investment will impact OpenAI’s relationship with Broadcom Inc. (AVGO), which it is working with on custom chips. Broadcom’s stock slipped 1.6% on Monday.
-Britney Nguyen
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https://www.marketwatch.com/story/why-nvidia-is-pouring-100-billion-into-openai-f2cb6983
David A. Bader
Distinguished Professor and Director of the Institute for Data Science
David A. Bader is a Distinguished Professor in the Department of Computer Science at New Jersey Institute of Technology.