Why did Nvidia spend $100 billion on OpenAI?

According to the New York Times , Nvidia said on September 22 that it would invest $100 billion in OpenAI. In addition, this agreement also allows the startup behind ChatGPT to use Nvidia's artificial intelligence (AI) semiconductors inside the company's data centers.

The move once again highlights the tech giants' close relationship in developing advanced AI systems.

For Nvidia, the deal gives the chipmaker a financial stake in the world's largest AI company. Meanwhile, the investment also gives OpenAI a large cash infusion and the access it needs to buy cutting-edge chips.

Benefits and risks of OpenAI

Reuters assessed this as a necessary key to help ChatGPT's creator maintain its dominant position in the context of increasingly fierce competition.

The deal will consist of two separate transactions, according to a source familiar with OpenAI. Nvidia will invest in the startup with non-voting stock after the deal closes, which OpenAI can then use to buy Nvidia chips.

Nvidia said it will invest $100 billion in OpenAI's data center projects. Photo: Reuters.

"It all starts with computing. Computing infrastructure will be the foundation of the future economy , and we will leverage what we are building with Nvidia to create new AI breakthroughs. At the same time, this agreement will empower people and businesses with these breakthroughs at scale," said Sam Altman, CEO of OpenAI.

As part of the deal, OpenAI will deploy Nvidia systems with up to 10 gigawatts of capacity — equivalent to 4-5 million GPUs. That’s the same number of chips Nvidia plans to ship in 2025, and the equivalent of the electricity needs of more than 8 million US homes.

OpenAI previously announced that Oracle agreed to provide an additional 4.5 gigawatts of compute capacity, bringing the total commitment to 5 gigawatts, enough for 2 million GPUs.

Along with the huge benefits, Nvidia’s investment also represents a vote of confidence in OpenAI, which has reached 700 million monthly users but has struggled to chart a path to profitability.

As of June, the AI startup had $10 billion in annual recurring revenue and was still losing money. It is expected that ChatGPT's creator will not start making a profit until 2029.

Typically, for loss-making AI companies like OpenAI, the debt used to underwrite data center deals depends in part on creditworthiness.

Interest rates for data centers closely tied to startups like OpenAI have now reached 15%, a debt market indicator of the risk investors see in AI business models, according to the WSJ .

Nvidia's real ambition

WSJ assesses Nvidia's move to invest $100 billion in OpenAI as helping to reset market expectations about the uncertain financial situation of ChatGPT's father. This is also a familiar tactic of the chip giant.

An aerial photo of an OpenAI data center under construction. Photo: Reuters.

CEO Jensen Huang has previously sought to leverage the enormous confidence investors have in Nvidia's future to help shore up the company's supply chain partners.

The chip giant will use its balance sheet strength to keep the AI boom going through deals, partnerships and investments in companies that are among its top customers.

These include cloud computing provider CoreWeave, or even rival chipmaker Intel and xAI, billionaire Elon Musk's AI startup.

This also highlights what some investors say is a “cyclical” outlook for Nvidia, meaning the company will take steps to boost or bolster demand for AI chips by backing startups or other companies in the industry.

The backed companies could then use the new funding or liquidity to buy Nvidia's own chips.

According to an analysis from NewStreet Research, for every $10 billion Nvidia invests in OpenAI, ChatGPT's creator will spend $35 billion on Nvidia chips.

Nvidia's ambition in investing $100 billion in OpenAI is to help reset market expectations about the shaky financial situation of ChatGPT's creator. Photo: Inc.

The deal will impact Nvidia's usual profits on cutting-edge chips, but still ensure continued demand, providing a lifeline for cash-strapped AI companies like OpenAI.

Nvidia and OpenAI said the first phase of the project will be operational in the second half of 2026, using Nvidia's next-generation Vera Rubin system. A group of investors valued OpenAI at $500 billion in a recent secondary round of trading.

Microsoft was one of the earliest investors, with a strategic partnership to integrate OpenAI models into its Azure cloud service and the Microsoft Office suite. Other OpenAI investors include SoftBank and Thrive Capital.

The two companies said the partnership will complement infrastructure projects OpenAI is working on with Microsoft, Oracle, SoftBank, and the Stargate project.

ChatGPT's founder calls Nvidia and Microsoft passive investors but also the company's two most important partners.

Mr. Huang said Nvidia’s investment would be in addition to everything that had been announced and signed. He also emphasized that this was an investment that was outside the financial plans the company had previously announced to Wall Street.

Source: https://znews.vn/vi-sao-nvidia-bo-100-ty-usd-cho-openai-post1587542.html