Nvidia is the “king” of the artificial intelligence boom. But if AI is just a bubble, it is in Nvidia’s best interest to keep it going strong for as long as possible. Another company at the center of this bubble is OpenAI.
OpenAI CEO Sam Altman admitted in his August interview with The Verge that he thinks we are in an AI bubble:
The internet was a really big deal. People got overexcited. Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes.
Altman isn’t the only big tech CEO who acknowledged the possibility that we are in an AI bubble. Meta CEO Mark Zuckerberg addressed this in the interview on the ACCESS podcast:
I do think that there’s definitely a possibility, at least empirically, based on past large infrastructure buildouts and how they led to bubbles, that something like that would happen here.
Nvidia’s latest move suggests that if we are in a bubble, the company is doing everything to keep it from bursting.
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Nvidia makes a 10GW datacenter deal with OpenAI
OpenAI and Nvidia (NVDA) revealed their non-binding agreement to deploy at least 10 gigawatts of Nvidia systems for OpenAI’s AI infrastructure.
Nvidia said it will invest up to $100 billion in OpenAI as the new Nvidia systems are deployed. The first stage, based on the Nvidia Vera Rubin platform, is expected to come online in the second half of 2026.
Nvidia will start investing in OpenAI once the deal is completed, with an initial investment of $10 billion. Then, OpenAI can use the money to buy Nvidia’s chips, reported Reuters.
More Nvidia:
- Analysts revamp Nvidia stock outlook on its investment in Intel
- Nvidia suffers a major blow from China
- Nvidia spending billions to spread its AI dominance
Google, Meta, and ByteDance are working on, or already have, custom non-Nvidia AI accelerators, and recently, OpenAI joined the pack.
Broadcom has a $10 billion contract with OpenAI to build custom AI accelerators for them.
The Nvidia-OpenAI deal could trigger an antitrust probe, as it potentially solidifies Nvidia’s chip monopoly. However, that’s less likely under the current U.S. government administration.
Other issues make this deal questionable, though.
OpenAI does not have the money for the deal
In 2024, OpenAI estimated it would lose approximately $5 billion on $3.7 billion in revenue. The company’s annual recurring revenue is expected to surpass $20 billion this year, but according to CNBC, OpenAI is still losing money.
Bloomberg reported in March that the company is expected to hit revenue of $125 billion in 2029 and will not be cash-flow positive before then.
The deal with Nvidia won’t help matters. During the August earnings call, Nvidia CEO Jensen Huang said that building an AI data center with 1GW of power could cost up to $60 billion.
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This means that OpenAI would need up to $500 billion to finance the project (with $100 billion shaved off from Nvidia investment).
The companies haven’t disclosed how they will power this gigantic AI infrastructure. According to Tom’s Hardware, 2GW AI data centers draw power equivalent to 1.9 million homes, which means this 10GW project would draw power equivalent to 9.5 million homes.
It’s unclear whether OpenAI will also invest in nuclear reactors to power this project.
To complicate matters even more, OpenAI has a $300 billion contract with Oracle for compute power.
If we add the two deals, the sum could reach $800 billion without the power bills and possible costs of building the power infrastructure.
These numbers are alarming.
Is Nvidia artificially keeping the AI bubble from bursting?
Reuters reported that Nvidia recently signed a deal to sell $6.3 billion worth of chips to CoreWeave and guaranteed the purchase of any cloud capacity not sold to CoreWeave’s customers.
One way to artificially keep the demand at maximum is to ensure CoreWeave has no unused capacity, thus sustaining the apparent ever-increasing demand story.
Related: Intel has a $13 billion headache
This CoreWeave deal, combined with the OpenAI deal, shows Nvidia’s strategy for plugging holes in the AI bubble before it bursts.
Providing his opinion on the Nvidia-OpenAI deal, John Foley, writing for Financial Times, said it “looks a lot like financial theatre”:
But if Monday’s deal seems performative, perhaps that’s the point. Both sides have something to gain from the impression that the AI race is stepping up a gear.
Key takeaways:
- Big tech CEOs admit we might be in an AI bubble.
- Nvidia has struck a deal with OpenAI for 10GW of AI data center power.
- Nvidia will invest up to $100 billion in OpenAI.
- OpenAI would need about $800 billion to finance its biggest contracts.
- The deal might cause an antitrust probe to be launched.
Related: Quantum Computing’s unexpected move sends shares reeling
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