Nvidia, OpenAI Appear Stalled on Their Mega Deal, But the AI Giants Still Need Each Other

Manuel

Summary:

Soaring demand and industry hype drove Nvidia’s market cap past $5 trillion at its peak in October, though the stock is down 15% from its high, pushing the valuation to $4.4 trillion.

CEO Jensen Huang and OpenAI CEO Sam Altman appeared together on CNBC in September to announce a mammoth $100 billion deal that was poised to usher in a new chapter for the booming artificial intelligence industry.

Five months later, no contract has been signed and no money has changed hands. More concerning to investors, the two companies are seemingly at odds.

The Wall Street Journal on Friday reported that the negotiations between the companies were “on ice” after some within Nvidia expressed doubts about OpenAI’s business model. It’s been a major topic of conversation in AI since November, when Nvidia warned in the risk factors of its quarterly filing that, “There is no assurance that we will enter into definitive agreements with respect to the OpenAI opportunity or other potential investments.”

Despite the reported friction, Nvidia and OpenAI still need each other.

Altman has said OpenAI requires a massive number of Nvidia’s AI chips to hit its growth targets for revenue, while Huang relies on customers like OpenAI to create services that wow customers and continue driving sales of its costly systems.

Soaring demand and industry hype drove Nvidia’s market cap past $5 trillion at its peak in October, though the stock is down 15% from its high, pushing the valuation to $4.4 trillion. OpenAI, meanwhile, was valued on the private market at $500 billion late last year and is reportedly eyeing a valuation of over $800 billion as it pursues another round of cash.

“We are looking forward to Sam closing it and he’s doing terrifically,” Huang told CNBC’s Jim Cramer on Tuesday. “And we will invest in the next round. There is no question about that.”

Nvidia first invested in OpenAI in October 2024, as part of a $6.6 billion funding round.

Huang added on Tuesday that “there’s no drama” in the relationship with OpenAI, a sentiment Altman expressed a day earlier in a post on X.

“We hope to be a gigantic customer for a very long time,” Altman wrote. “I don’t get where all this insanity is coming from.”

Still, when it comes to the historic agreement from September, which is supposed to involve OpenAI’s building out of infrastructure requiring 10 gigawatts of power, there’s been little apparent progress.

Nvidia’s initial investment of $10 billion will be deployed when the first gigawatt is completed, CNBC reported at the time of the agreement. The companies said the first phase of the latest investment would come online in the second half of 2026.

OpenAI’s current fundraising round, which Huang said will include Nvidia’s participation, is not part of last year’s arrangement. Huang told Cramer that Nvidia would evaluate additional investments into OpenAI and wants to participate in the AI lab’s IPO.

Nvidia shares fell about 3% on Tuesday, leading a broader slide in tech stocks, and have declined for three straight days.

A long history

Nvidia and OpenAI have been linked together for a decade.

When OpenAI was a little-known non-profit lab in 2016, it was the first entity that wanted to use Nvidia’s debut AI system, which was called DGX, Huang told Joe Rogan in a December interview.

In subsequent years, OpenAI became a heavy user of Nvidia chips, usually provided through Microsoft

infrastructure. In February 2023, months after ChatGPT’s release, Huang appeared ebullient on Nvidia’s earnings call, praising OpenAI and boasting that generative AI was transforming his company.

“Everybody who develops software is either alerted, or shocked into alert, or actively working on something that is like ChatGPT to be integrated into their application,” Huang said, as his company’s stock price skyrocketed.

Nvidia’s parabolic growth coincides with OpenAI’s explosion.

In the quarter ChatGPT was released, Nvidia generated $6 billion in revenue. In the period that ended this past October, that number had swelled almost tenfold to $57 billion. Analysts say the chipmaker has over 90% of the market for graphics processing units, or GPUs.

ChatGPT is the leading chatbot by usage, hitting 800 million weekly users late last year. In January, the company said it was on track to reach $20 billion in annual sales, but analysts don’t project it to turn profitable until 2030.

At the heart of the tension, which both companies deny exists, is how they’ve each diversified by partnering with the other’s rivals.

With a swelling balance sheet and a need for more customers, Nvidia has used its cash to invest in many of its important partners, including committing $10 billion in November to Anthropic. Investors are looking for Nvidia to team up with more big buyers due to its hefty customer concentration with a few hyperscalers.

At the same time, OpenAI has made several announcements with other semiconductor companies, and said it needs more computing power than Nvidia alone can provide.

In June, Altman appeared with Advanced Micro Devices

CEO Lisa Su at the chipmaker’s annual event in San Jose, California. Altman said OpenAI would help AMD develop its next-generation AI chips and be a customer. AMD is the only company aside from Nvidia to make a big data center GPU for AI.

Four months later, OpenAI announced a partnership with Broadcom, which helps make custom AI chips, including Google’s tensor processing units. And last month, OpenAI said it would use chips from startup Cerebras in a deal worth over $10 billion.

With reports swirling about emerging challenges in the OpenAI-Nvidia relationship, OpenAI infrastructure executive Sachin Katti took to X on Monday to describe his company’s partnership with the chip giant as “foundational.”

“Our entire compute fleet runs on Nvidia GPUs,” Katti wrote. “The demand curve is unmistakable. The world needs orders of magnitude more compute.”

Source: CNBC

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