I used to be mistaken.
That’s not one thing I say usually. At the very least 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 massive 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 mistaken about who would make the primary massive transfer.
As a result of it wasn’t Amazon.
It was OpenAI.
And the deal that firm simply signed with AMD may change the steadiness of energy in AI {hardware} endlessly.
A Crack in Nvidia’s Armor
For years, Nvidia has been essentially the most highly effective title in synthetic intelligence chips.
Its GPUs energy nearly 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 clients 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 era of information facilities.
And the phrases of the deal are beautiful.
It offers OpenAI the correct to buy as much as 160 million AMD shares for a penny every if the chipmaker meets key milestones. These milestones embrace 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 era of OpenAI’s large fashions has required extra GPUs, extra energy and extra money.
And the corporate has depended nearly 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 hundreds of thousands of chips to coach its new fashions and run inference for tons of of hundreds of thousands of customers. However each greenback saved on compute is a greenback that might be redirected into mannequin growth.
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 heart 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 gives.
And this new partnership offers OpenAI one thing it hasn’t had earlier than relating to 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 right now’s fashions.
Earlier this yr, AMD’s CEO Lisa Su mentioned she expects the marketplace for AI compute infrastructure to soar previous $500 billion within the subsequent three years.
She additionally instructed AMD has an actual shot at taking a few of the AI large’s market share.
And she or he could be proper.
AMD’s information heart 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 sooner.
Right here’s My Take
Amazon and OpenAI are two of the most important consumers of computing energy on the planet. AMD’s chips are additionally utilized by Microsoft and Meta.
Collectively, these corporations drive many 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 might flip the chip battle right into a easy struggle over value and efficiency.
And that might stage the taking part in 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 advised readers there have been a number of causes to consider it was about to go larger.
As of this morning, AMD is up round 370% since I first really useful it in 2020.
And I nonetheless assume there’s a massive 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 cause to assist make it occur.
Meaning AMD might be the primary firm in years to actually problem Nvidia’s energy.
However don’t really feel too unhealthy 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 tasks 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 KingChief Strategist, Banyan Hill Publishing
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