NVIDIA’s $100 Billion OpenAI Deal In Focus: Are We In an AI Bubble?

NVIDIA (Nasdaq: NVDA | NVDA Price Prediction) kicked off a historic wave of deals with OpenAI on September 22nd when the company announced it was investing up to $100 billion into OpenAI as part of a new partnership. In return, OpenAI committed to buying 10 gigawatts worth of NVIDIA chips. 

That deal kicked off a flurry of announcements. OpenAI later announced a deal with AMD (Nasdaq: AMD) for 6 gigawatts worth of chips, a deal with Oracle (Nasdaq: ORCL) for another 10 gigawatts, and an expanded partnership to buy custom chips from Broadcom (Nasdaq: AVGO). In total, the announcements from OpenAI in recent weeks are estimated to lead to more than $1.5 trillion in new spending. 

The big question for NVIDIA shareholders is how can OpenAI afford all this, and does this tangled web of partnerships increase the odds we’re in an AI bubble? 

In the most recent episode of The AI Investor Podcast, 24/7 Wall St. analysts Eric Bleeker and Austin Smith dug into all the recent AI deals that kicked of with NVIDIA’s OpenAI deal and ask whether OpenAI is now becoming “too big to fail.” 

Watch Our Discussion on NVIDIA’s $100 Billion Deal with OpenAI 

Key points from our conversation include:

• NVIDIA’s partnership with OpenAI has raised concerns that AI companies are pushing into ‘vendor financing’ arrangements that inflated the Dot-Com bust. 
• Following NVIDIA’s partnership announcement, AMD announced their own expanded partnership with OpenAI. That arrangement will see OpenAI buy worth around $90 billion to $100 billion worth of AMD’s chips. In exchange, OpenAI is granted warrants that could see the company own around 10% of AMD’s shares. 
• Even if you’re not invested in NVIDIA or AMD: Almost all downstream returns for the semiconductor space are now being driven by OpenAI’s announcements. 
• OpenAI announcements have propelled returns for foundries, memory stocks, and semiconductor equipment. 
• However, all these deals are now also creating a scenario where OpenAI is becoming ‘too big to fail.’ Increasingly, the fate of all AI stocks are intertwined in whether OpenAI can hit its ambitious revenue growth targets in the years ahead. 

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Summarized Transcript

Eric Bleeker: Austin, there continues to be growing negativity around AI, which is understandable. Many of these deals are quite interconnected. For example, NVIDIA is set to invest $100 billion in OpenAI, which will use that investment to purchase NVIDIA’s chips. We are seeing more of these types of deals, and I sympathize with those who feel concerned, as it raises questions about whether we are in a bubble that is reaching its peak. That said, we often see days where investors quickly shift their risk appetite, with the market returning to new highs shortly after a downturn. Overall, the situation remains very frothy.

Austin Smith: It is dizzying right now. You mentioned the power cord analogy, and I’ve seen this referred to as the ouroboros economy, like a snake eating itself. There are major concerns about circular investments that resemble the dot-com bust and vendor financing. For instance, during the dot-com era, companies exchanged advertising without actual revenue changing hands. This raises valid concerns about circular investments, but there are significant differences today. Many companies are generating real revenue, and while a minority are currently deriving revenue from AI, the major tech giants are producing billions in free cash flow and efficiency gains. For example, Meta’s return on invested capital has increased significantly due to AI investments.

Eric Bleeker: Most people are aware of these deals, but let’s clarify what’s happening. NVIDIA announced a $100 billion investment in OpenAI, which was followed by OpenAI committing to purchase $100 billion worth of chips from AMD. OpenAI’s agreement involves purchasing six gigawatts of chips, starting with one gigawatt in the second half of 2026. This translates to an estimated revenue of $90 to $100 billion for AMD. The relationship between the chip purchases and stock value is essentially one-to-one. NVIDIA’s deal, announced on September 22, is framed as a strategic partnership, with OpenAI committing to 10 gigawatts of NVIDIA GPUs. The financial structure of these deals is complex, with NVIDIA investing a portion of the build-out costs while also receiving equity back.

Eric Bleeker: This is the second episode in a row where major storylines are driven by OpenAI. Last episode focused on Oracle and Broadcom, while this one centers on NVIDIA and AMD. Everything in the investing space seems to be influenced by OpenAI right now. For instance, Taiwan Semiconductor has seen a 22% increase, largely due to its relationships with AMD and NVIDIA. Memory stocks are also booming, with Micron up 45% in the past month. Even if investors are not directly involved with NVIDIA or AMD, their portfolio performance is being driven by OpenAI’s ambitions.

Austin Smith: I have some concerns about the market structure, as OpenAI serves as a critical pillar for the industry. If OpenAI encounters any issues, it could significantly impact investor sentiment. I would prefer a scenario where multiple companies contribute to industry growth rather than relying on one major player.