Recent weeks have been ripe with deals among artificial intelligence (AI) players. Words from Nvidia's (NVDA 0.41%) Jensen Huang during the company's earnings report in August set the stage for this: At the time, Huang predicted that AI infrastructure spending would reach as much as $4 trillion by 2030.
This signals that demand for compute is strong and that in the coming quarters and years, orders for AI chips may explode higher. That would benefit designers of chips, including Nvidia and rivals like Broadcom (AVGO 1.03%) and Advanced Micro Devices (AMD +1.39%). And this has already begun, as each of these players has struck a deal with one of today's biggest AI players: OpenAI.
The AI research lab, creator of popular chatbot ChatGPT, needs enormous amounts of compute to power its platforms -- and so it recently turned to these top chip companies to prepare itself for the years to come. Let's check out the three deals and find out which chip designer is the biggest winner of the bunch.
Image source: Getty Images.
Nvidia and rivals
So, first, a quick note about these chip rivals. Nvidia, first to market with its graphics processing units (GPUs), dominates with these very powerful AI chips. AMD entered the market later but has been innovating to rival Nvidia and now offers chips that some analysts say can compete with those of the market leader. Finally, Broadcom is known as an expert in networking, and along with this, designs chips called XPUs -- these are custom accelerators, so they're made to excel at specific tasks. Nvidia and AMD chips are general purpose to be used in a wide range of AI contexts.
All three companies have seen demand for their chips climb and have reported AI revenue growth in the double-digits in recent quarters.
Now, let's consider the OpenAI deals, and we'll start with Nvidia. Last month, Nvidia said it would invest as much as $100 billion in OpenAI as the research lab builds out 10 gigawatts of Nvidia systems over the coming years -- deployment will begin in the second half of next year, based on Nvidia's upcoming Vera Rubin system. Nvidia will progressively invest in OpenAI as this deployment unfolds. For reference, one gigawatt is the equivalent of 294 utility-scale wind turbines, according to the Department of Energy.
NASDAQ: NVDA
Key Data Points
AMD and OpenAI
Then, earlier this month AMD and OpenAI struck a deal. OpenAI will deploy six gigawatts of AMD chips over a period of years, and as in the Nvidia agreement, this will begin in the second half of next year. As part of the plan, AMD has issued OpenAI a warrant for as many as 160 million shares -- representing 10% of AMD. The shares will vest according to specific milestones achieved. So, it's possible that OpenAI, as part of this deal, will eventually hold 10% of AMD.
Finally, in recent days, OpenAI said it would co-develop systems that include Broadcom's chips and networking solutions. This is for 10 gigawatts of Broadcom's XPUs, and like the other aforementioned deals, rollout will begin in the second half of next year. They didn't release financial terms of the deal.
Which chip designer wins?
Now, let's return to our question: Which chip designer may be the biggest winner? The opportunity to power OpenAI's projects is great news for all of these players, but I think Nvidia has scored the best deal of the bunch, and here's why.
Nvidia, thanks to its pledge to invest in OpenAI, has ensured that deployment of its GPUs will happen -- as the company progressively invests in OpenAI, that offers the research lab the ability to pay for its infrastructure scale up. So, this is a great investment for Nvidia as it ensures its GPUs will be central to this next stage of AI growth. Also, Nvidia, with more than $56 billion in cash today, has the financial resources to commit to billion-dollar investments over time.
All of this should continue to fuel revenue growth at Nvidia and push the stock price higher during this exciting phase of the AI story.
