Today, Nvidia (NVDA -4.84%) dominates one of the most exciting and valuable markets on the planet: the artificial intelligence (AI) chip market. The company sells the graphics processing units (GPUs) that power crucial AI tasks -- and its GPUs are the fastest around. This makes it the key element needed in every AI data center, and considering spending in AI infrastructure may reach into the trillions in the coming years, Nvidia's revenue may be set to explode higher to new record levels.
Though Nvidia is the market leader, it still faces competition from other chip designers that have set their sights on taking share from this giant. One of these players is Advanced Micro Devices (AMD -7.78%), a company that's boosted the power of its GPUs in recent years and seen demand and revenue climb. And this player just signed a multi-billion-dollar, long-term deal for compute with AI powerhouse OpenAI -- a partnership that even Nvidia chief Jensen Huang called "clever."
Did AMD just say checkmate to Nvidia? Let's find out.
Nvidia's focus on AI
First, though, let's take a quick look at the Nvidia and AMD stories. Years before this AI boom began, Nvidia recognized the opportunity and made a major transition, shifting its focus from the gaming market to designing its GPUs to suit AI. This was a winning bet as it resulted in Nvidia entering the market first and leading in innovation -- and all of this has generated double- and triple-digit revenue growth in recent quarters, into the billions of dollars.
AMD has increased its push into the AI market over the past few years, launching the AMD Instinct line of accelerators, and in the latest quarter, predicted its MI350 series would drive revenue growth in the second half of the year. Some analysts have said that AMD's innovations position it to compete with Nvidia's Blackwell architecture and chip -- released late last year -- but Nvidia's commitment to release upgrades on an annual basis could keep it a step ahead when it comes to overall GPU performance and therefore revenue.
Big tech companies are looking for the most powerful compute available -- and so far, they know they can find that at Nvidia.
OpenAI's deal with AMD
But just recently, a major tech customer has turned to Nvidia rival AMD. OpenAI, the research lab behind popular chatbot ChatGPT, signed a deal for compute that could lead to it taking a 10% stake in the chip designer. As part of the agreement, OpenAI will deploy 6 gigawatts of AMD's chips over several years -- the first 1-gigawatt launch is set to begin in the second half of next year. For reference, 1 gigawatt is comparable to 100 million LED bulbs, according to the Department of Energy.
In return, AMD has issued OpenAI a warrant for as many as 160 million shares, representing as much as 10% of AMD, and these will vest as certain milestones are reached.
With this, it's natural to ask: Did AMD just say checkmate to Nvidia? After all, OpenAI is a massive customer and considered one of the key players in the AI space. Nvidia's Huang, interviewed by CNBC, said it was surprising that AMD would potentially offer such a stake, but called the deal "clever."
And it is indeed an interesting operation for AMD, ensuring the company a major position in this infrastructure scale-up phase. Huang has said AI infrastructure spending may reach $4 trillion by the end of the decade, and this represents an enormous opportunity for chip designers such as AMD and Nvidia.
Image source: Getty Images.
What the deal means for AMD and for Nvidia
So, the OpenAI deal is positive for AMD -- but I wouldn't say it's negative for Nvidia. This chip giant signed its own deal with OpenAI last month, and it involves the deployment of 10 gigawatts of Nvidia systems across data centers. Nvidia will invest $100 billion in OpenAI progressively as the project unfolds, and the initial gigawatt, as with the OpenAI-AMD deal, is set to deploy in the second half of next year.
A quick comparison of the two deals: The Nvidia-OpenAI agreement involves more gigawatts, and Nvidia isn't giving up a stake in its business -- on top of this, though Nvidia is offering OpenAI funding, this will result in revenue growth as OpenAI returns to Nvidia to order GPUs. This pretty much guarantees that Nvidia will be the chip designer to benefit the most as OpenAI expands -- and AMD isn't about to step ahead of the market leader.
All of this means that, yes, AMD should score a win thanks to its agreement with OpenAI and this may boost its growth in the market. But the chip designer can't say "checkmate" to its bigger rival as Nvidia is perfectly positioned to maintain its lead over the long term.
