Nvidia intends to invest in OpenAI, which is purchasing cloud computing from Oracle, which is purchasing processors from Nvidia, and which owns CoreWeave, which provides artificial intelligence infrastructure to OpenAI.
The AI boom that is transforming how people live and work is increasingly being fuelled by a small number of businesses turning to one another for the massive sums of finance and computing capacity required to support their rapid expansion.
Some of them collaborations have a combined value of hundreds of billions of dollars. When combined, they have helped push U.S. stock indexes to all-time highs by significantly raising the companies’ values.
However, there is a chance that the money moving between these businesses is producing a false sense of development as AI investing becomes more centralized.
A weak link might jeopardize the industry’s sustainability if the trend picks up speed, according to some analysts, which would have a significant impact on the US economy.
In a recent report, experts from the Oxford Economics research group stated that while the experience of a quarter of a century ago [when the dot-com bubble burst] won’t necessarily be replicated, the magnitude of recent investment increases by tech businesses already suggests that they are taking big risks.
They wrote that there would be a significant correction in tech stocks with detrimental effects on the real economy if it became apparent that AI productivity gains and, consequently, the return on investment, might be restricted or postponed.
An intricate network of deals
The most recent illustration of that network of investments was revealed on Monday when ChatGPT creator OpenAI announced a partnership with Advanced Micro Devices, or AMD, a manufacturer of artificial intelligence chips.
As per the conditions of the deal, OpenAI will buy AMD’s processors for an unknown amount in return for the opportunity to acquire up to 10% of the semiconductor behemoth.
Weeks before to the announcement, Nvidia had announced a contract in which it committed to investing up to $100 billion in OpenAI.
We are excited to collaborate with AMD and use their chips to benefit our users! On X, OpenAI CEO Sam Altman wrote. Nvidia and AMD are direct rivals.
A question concerning whether any OpenAI funds will be utilized to finance the purchase of its competitor’s processors was not immediately answered by an Nvidia representative.
The $100 billion OpenAI investment made by Nvidia CEO Jensen Huang has been described as a chance to invest in the next “multitrillion-dollar” company.
With a $4.5 trillion market valuation, Nvidia is a member of that exclusive club.
Huang stated on the “BG2” technology podcast that investments such as Nvidia’s in OpenAI are based on “the confidence in the revenues” that a company can sustain.
Through the New Jersey-based cloud computing startup CoreWeave, which has a long-standing contract with OpenAI to supply Nvidia equipment to OpenAI, Nvidia and OpenAI already have an indirect partnership.
One of the largest investors in CoreWeave? Nvidia.
In the thicket, there are other players. Oracle has stated that in order to power one of OpenAI’s data centers, it would invest around $40 billion on Nvidia processors.
Additionally, Oracle and OpenAI are working with the SoftBank group of Japan on plans to invest $500 billion in new data centers under the Stargate project.
According to the Stargate agreement, Nvidia is a “core technology partner.” A $3 billion stake in Nvidia is held by SoftBank.
NBC News was directed by an OpenAI spokesperson to CFO Sarah Friar’s recent remarks to CNBC, when she talked about the company’s requirement for additional computation capacity. The “circular” question, however, was not specifically addressed by her.
Neither CoreWeave nor Nvidia provided a statement. Requests for comment were not answered by SoftBank or Oracle representatives.
The doomsday scenario
According to some investment advisers, the Nvidia-OpenAI deal is particularly similar to those that were announced prior to the dot-com bubble burst in 2000.
The tech-heavy Nasdaq Composite stock index lost billions of dollars in market value in March of that year, plunging 77%.
Fifteen more years would pass before the Nasdaq reached its peak in March 2000.
Gil Luria, a managing director at D.A. Davidson financial group who focuses on technology, stated that there are both healthy and unhealthy aspects of the AI ecosystem.
According to him, the unhealthy aspect has been identified by “related-party transactions” such as those involving these businesses, which have the potential to artificially boost the value of the participating companies.
He warned that “there will be some deflating activity” if investors believe the relationships between the AI behemoths are becoming too close. That’s Wall Street jargon for a bubble bursting.
By claiming that AI is a natural part of any industry’s life cycle, Altman has attempted to allay concerns about an impending AI bust.
“There will be booms and busts between the ten years we’ve been operating and the many decades ahead of us,” Altman stated last month while giving a tour of the enormous data center complex that OpenAI is constructing in Abilene, Texas.
According to him, “people will underinvest and lose a lot of revenue, and overinvest and lose money.”
A ton of money
Concerns about AI’s insular network of transactions and investments have been overshadowed by the near-term potential for practically unfathomable profits.
Rather than worrying about whether AI is truly expanding at the rate it appears to be, many investors are more concerned with whether the firms can grow quickly enough and generate enough money to justify the massive investments being made in them.
In order for this enormous experiment to be successful without resulting in significant losses, [OpenAI] and its competitors must now make enormous profits and revenues in order to cover all of the commitments they are making and provide investors a return. Peter Boockvar, the author of The Boock Report and chief investment officer at OnePoint BFG Wealth Partners, writes this.
As long as tech company values continue to climb and investors continue to get wealthy, Wall Street will have an incentive to disregard the apocalyptic scenarios and bless the boom.
As of Wednesday, just seven tech companies, referred to as the “Magnificent 7” on Wall Street, accounted for over 35% of the market value of all the companies in the S&P 500 Index, or more than $20 trillion.
And all of them—Apple, Microsoft, Nvidia, Tesla, Amazon, Facebook parent company Meta, and Google parent company Alphabet—are actively working on AI projects.
