The artificial intelligence (AI) revolution already has been a boon to Nvidia (NVDA 2.13%), supercharging the company's revenue growth and stock performance. Thanks to Nvidia's dominance in the AI chip market, it's seen sales climb in the double and triple digits -- and last year delivered a record level of revenue at more than $130 billion. As for the stock, it's gained more than 1,300% over the past five years.
And as this growth story has unfolded, Nvidia expanded into a variety of related AI products and services, from enterprise software to networking, cementing its position as the "go to" place for AI. Still, the company faces rivals in the market, from other chip designers and even from customers that have started making some of their own chips. That's prompted some investors to wonder whether Nvidia will be able to ensure its position over time and keep its pricing power -- its chips are the most powerful on the market and also the most costly.
But Nvidia, in this one recent move, has shown its strength as the central player in the AI market. The company aims to invest as much as $100 billion in Open AI amid a buildout of the lab's data centers. This partnership could become the biggest profit engine in AI history -- and secure Nvidia's AI empire. Let's check it out.
Image source: Getty Images.
Nvidia and OpenAI
First, a little background on both Nvidia and OpenAI. Nvidia, as mentioned, is the world's No. 1 AI chip designer, offering the top performing graphics processing units (GPUs) to power crucial AI tasks. Among its biggest customers are leading tech and AI players, from Microsoft to Meta Platforms, that aim to use the best possible tools to power their AI projects.
OpenAI also is a Nvidia customer, and like Nvidia, is central to the AI story. That's because OpenAI is the research lab that developed and owns popular chatbot ChatGPT -- today OpenAI reaches more than 700 million weekly active users. This AI giant isn't publicly traded but has significant partnerships in the tech world -- for example, it launched earlier this year the Stargate Project to build U.S. AI infrastructure with Oracle and Softbank -- and Microsoft has invested about $13 billion in OpenAI.
Moving on to the latest news, Nvidia this week said it will invest as much as $100 billion in OpenAI's buildout, an effort that will involve the deployment of an enormous amount of Nvidia computing power. The Nvidia platform will use 10 gigawatts of power -- that's the equivalent of 4 million to 5 million GPUs, Nvidia chief Jensen Huang, calling the deal a "giant project," told CNBC.
The investment will be made in installments, with the first $10 billion to come once the first gigawatt is complete, CNBC also reported, citing a person familiar with the project.
NASDAQ: NVDA
Key Data Points
A path to GPU purchases
This Nvidia partnership with OpenAI is an enormous win for both of these AI players. For OpenAI, it ensures the funding needed to build out infrastructure, and therefore continue to advance its research, increase its user base, and generate revenue growth. For Nvidia, this cements its position as a key OpenAI partner, with the research lab receiving funding from Nvidia, then going on to buy GPUs from the chip giant. As this project advances, involving two of the biggest AI names in the world, this relationship should supercharge revenue at both OpenAI and Nvidia.
An additional benefit for Nvidia is this move strengthens its market position, showing investors who have worried about the company's future growth that it isn't likely to be unseated by rivals or forced to lower the prices of its GPUs to keep up.
Finally, it's important to consider this latest partnership in the context of the full picture. Nvidia recently made another important move, investing in Intel to secure that company's top central processing units (CPUs) for Nvidia platforms and to offer Nvidia GPU chiplets for Intel PC systems. This strengthens Nvidia's current offerings and broadens its customer base.
These decisions are putting this dominant AI company on track to maintain its leadership and significantly increase revenue in the upcoming phases of the AI story. And the latest deal with OpenAI, involving enormous future orders for Nvidia GPUs to power this data center empire, is on its way to becoming the biggest profit driver in the history of AI.
