I used to be incorrect.
That’s not one thing I say usually. Not less than not in print. (My spouse may argue the purpose, however she doesn’t edit this text.)
Again in August, I pointed to Amazon’s $84 million AMD funding as a clue that one thing large was brewing in AI.
I believed it marked the primary transfer in a strategic realignment round Amazon’s cloud and AI ambitions.
I nonetheless assume that’s true. However I used to be incorrect about who would make the primary large transfer.
As a result of it wasn’t Amazon.
It was OpenAI.
And the deal that firm simply signed with AMD may change the stability of energy in AI {hardware} eternally.
A Crack in Nvidia’s Armor
For years, Nvidia has been essentially the most highly effective identify in synthetic intelligence chips.
Its GPUs energy virtually each main mannequin in existence — from OpenAI’s ChatGPT to Google’s Gemini and Anthropic’s Claude.
What’s extra, Nvidia constructed an ecosystem that retains its prospects locked in, from its developer software program platform to its proprietary networking and cooling methods.
This dominance turned Nvidia right into a trillion-dollar firm.
However its iron grip on the AI market is lastly being challenged. As a result of AMD simply signed a take care of OpenAI to provide high-performance GPUs for its subsequent technology of information facilities.
And the phrases of the deal are gorgeous.
It provides OpenAI the best to buy as much as 160 million AMD shares for a penny every if the chipmaker meets key milestones. These milestones embody deploying as much as six gigawatts of chips and reaching future stock-price targets as excessive as $600.
If AMD hits these numbers, OpenAI may personal about 10% of the corporate.
To be clear, that is an unprecedented association between a chipmaker and its greatest buyer.
As an alternative of merely paying for {hardware}, OpenAI is tying its monetary future to AMD’s success.
And it couldn’t come at a greater time for each corporations.
Each new technology of OpenAI’s large fashions has required extra GPUs, extra energy and more cash.
And the corporate has depended virtually completely on Nvidia’s chips till now. However Nvidia’s H100 chips promote for as much as $40,000 apiece, and provide has been tight for months.
That places OpenAI in a bind.
It wants tens of millions of chips to coach its new fashions and run inference for a whole bunch of tens of millions of customers. However each greenback saved on compute is a greenback that might be redirected into mannequin improvement.
In the meantime, Nvidia has been working close to full capability, charging premium costs and controlling entry to the world’s most sought-after chips.
It’s no shock that Nvidia’s information middle income jumped 154% yr over yr final quarter, hitting $22.6 billion.
However its gross margins are close to 75%, a stage few industries can maintain with out inviting competitors.
That’s precisely what AMD offers.
And this new partnership provides OpenAI one thing it hasn’t had earlier than in terms of AI {hardware}: leverage.
However the firm isn’t sacrificing high quality to realize this leverage.
AMD’s newest accelerator, the MI325X, started transport this summer season.
Picture: AMD
It’s constructed on the corporate’s CDNA 4 structure, designed particularly for large-scale AI coaching.
And a next-generation chip, the MI350X, is predicted to launch in early 2026 with double the efficiency per watt of at this time’s fashions.
Earlier this yr, AMD’s CEO Lisa Su stated she expects the marketplace for AI compute infrastructure to soar previous $500 billion within the subsequent three years.
She additionally urged AMD has an actual shot at taking among the AI large’s market share.
And she or he could be proper.
AMD’s information middle income jumped 57% within the first quarter of 2025, which tells me that AMD’s AI {hardware} enterprise is gaining traction.
And if OpenAI’s deal drives large-scale adoption, that quantity may go up even quicker.
Right here’s My Take
Amazon and OpenAI are two of the most important patrons of computing energy on the planet. AMD’s chips are additionally utilized by Microsoft and Meta.
Collectively, these corporations drive a lot of the world’s demand for AI coaching and inference.
If they begin constructing their fashions round AMD’s {hardware}, then they gained’t be locked into Nvidia’s ecosystem anymore.
That will flip the chip battle right into a easy struggle over worth and efficiency.
And that might stage the enjoying area for AMD, whose inventory surged as a lot as 35% on Monday after the information of this deal broke.
We’ve had AMD in our Strategic Fortunes portfolio for some time now, so congratulations to all of you who’ve been holding this inventory. A couple of months in the past, I instructed readers there have been a number of causes to imagine it was about to go greater.
As of this morning, AMD is up round 370% since I first advisable it in 2020.
And I nonetheless assume there’s a large payoff coming sooner or later.
If AMD captures simply 15% of the AI chip market, it may translate into billions of {dollars} extra in annual income.
And OpenAI, now instantly invested in AMD’s success, has each purpose to assist make it occur.
Which means AMD might be the primary firm in years to actually problem Nvidia’s energy.
However don’t really feel too dangerous for Nvidia.
As a result of the demand for high-end chips isn’t going away. It’s solely rising. And no single firm can meet this demand alone.
Again when ChatGPT launched in 2022, AI information facilities drew lower than 20 gigawatts of energy. However McKinsey initiatives that quantity may exceed 150 gigawatts by 2030.
That’s an anticipated tenfold surge in lower than a decade.
It explains why chips have gotten the brand new oil of the digital age…
And why AMD’s new take care of OpenAI may simply be the beginning of an actual struggle for the way forward for AI {hardware}.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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