Did the circular AI economy just wobble? Last week it was reported that a much-discussed $100bn deal – announced last September – between Nvidia and OpenAI might not be happening at all.
This was a circular arrangement through which the chipmaker would supply the ChatGPT developer with huge sums of money that would largely go towards the purchase of its own chips.
It is this type of deal that has alarmed some market watchers, who detect a whiff of the 1999-2000 dotcom bubble in these transactions.
Now it seems that Nvidia was not as solid on this investment as had been widely believed, according to the Wall Street Journal. Negotiations had not progressed, with Jensen Huang, Nvidia’s chief executive, privately emphasizing that the deal was “non-binding” and “not finalized”. Huang appeared to confirm this in Taipei on Saturday, telling reporters that Nvidia would make a “huge” investment into OpenAI’s next funding round, but “nothing like” $100bn.
A report from Reuters soon suggested that the feeling was mutual: OpenAI was “unsatisfied” with Nvidia’s advanced AI chips, it said, and seeking alternatives. Nvidia’s stock has taken a 10% hit so far this week, a flurry of headlines have ensued and both companies have stepped into damage control.
“We love working with Nvidia and they make the best AI chips in the world,” wrote Sam Altman, OpenAI’s CEO, on
Even Oracle appears to be shaken: the software company, which is counting on a $300bn cloud computing deal with OpenAI, said it still expects the startup to be good for its commitment even if it does not receive the full amount from Nvidia. In total, OpenAI has committed to compute deals – the infrastructure for building and powering its AI tools – worth more than $1tn.
“The Nvidia-OpenAI deal has zero impact on our financial relationship with OpenAI,” Oracle posted on
That a $100bn deal between two of the most crucial players in AI appears to have evaporated over a weekend is unsettling. But there are solid business reasons behind the apparent shake-up, said Alvin Nguyen, analyst at research firm Forrester.
OpenAI’s ambitious growth trajectory means it will be difficult for the company to stick with a single vendor, especially as it plans new, computationally demanding AI models, he said. “They need chips. They need as many as possible.”
As for Nvidia, its commitment to the $100bn may have been loose in the first place, even as it was widely reported. “They will not discourage people from overhyping. Why say something and immediately sucker punch your own share price?”
For a giant startup like OpenAI, manoeuvring in and out of deals – for example, with chipmakers – may just be business as usual, said Nguyen: “You know (Altman’s) background as a startup person, and you know the maneuvers he’s doing make sense from a startup perspective.”
For Nvidia, meanwhile, AI hype is part of selling chips. “You don’t know what’s going to happen,” said Nguyen. “And so you let other people put numbers out there for you and let that drive the hype.”
The issue is, of course, that investors and other companies like Oracle may have taken the widely reported $100bn commitments seriously.
In response to a query from the Guardian, an OpenAI spokesperson referred to Altman’s X post, and to remarks Huang made to CNBC on Tuesday, including: “There is no drama.”
The spokesperson added: “Our teams are actively working through details of our partnership. Nvidia technology has underpinned our breakthroughs from the start, powers our systems today, and will remain central as we scale what comes next.”
Nvidia and Oracle did not respond to requests for comment.
This is all taking place against the backdrop of a changing investment landscape for AI, where hype is giving way to realities about what aspects of the technology are actually going to earn money.
While investors ponder whether OpenAI is going to be able to pay for a $1.4tn compute deal, reality is biting further down the AI food chain. This week has seen a massive sell-off in certain software stocks, prompted in part by the launch of a new Anthropic AI tool that can carry out a number of professional services, which has led to fears that business models exposed to competition from AI products will be disrupted.
This is the flip-side of “jagged AI”, which is the term for advanced AI tools having uneven talents, such as being good at sifting through documents but less good at solving complex maths problems. If advanced systems are good at automating legal work, then legacy companies in service industries will suffer. The losers are beginning to emerge and are being picked up by investors.
At the top of the AI pyramid the competitive effects are also biting. OpenAI’s chatbot, ChatGPT, is losing ground to competitors. Data released on Tuesday show its market share has eroded from 69% to 45% owing to the rise of Google’s Gemini, xAI’s Grok and Anthropic’s Claude. OpenAI appears to have retreated from soaring talk of super-intelligence in the past months, focusing instead on profitable mundanities such as adverts and adult content.
The apparent evaporation of a $100bn deal may be of a piece with last year’s sci-fi rhetoric meeting this year’s practicalities. The question is, who might be left holding the bill?
“I think there will be knock-on effects,” said Nguyen. “I mean, it’s that statement: the markets can stay irrational longer than you can stay solvent.”
