AMD deal with OpenAI gives Nvidia a needed challenger in AI chips
On the left, AMD CEO Lisa Su and Nvidia CEO Jensen Huang
Benoît Tessier | Ritzau Scanpix | Crazy Claus Rasmussen | Reuters
in the 1990s Intel What the semiconductor manufacturer that dominates the PC chip market needs Advanced Micro Devices exist as a viable No. 2 to help avoid being accused of monopolistic behavior.
Nearly three decades later, AMD may be taking on a similar role. NvidiaThe company controls more than 90% of the market for graphics processing units used for AI workloads.
When AMD announced a deal to sell billions of dollars worth of GPUs to OpenAI on Monday, it announced itself as a serious rival that could take a share of the fast-growing market for AI chips, analysts said.
“Currently, Nvidia has a near-monopoly; AMD has a low-single-digit share of the $250 billion market for AI data center silicon,” said Mandeep Singh, senior analyst at Bloomberg intelligence.
Up to this point, Nvidia and OpenAI have defined the new era of artificial intelligence.
Nvidia’s GPU sales have increased the company’s market value to $4.5 trillion. OpenAI’s private market valuation has soared to $500 billion, driven by the popularity of ChatGPT and the company’s overly aggressive plans to build data centers.
Nvidia is a major investor in OpenAI and last month agreed to pour up to $100 billion into building the AI startup’s infrastructure.
While AMD is a distant rival, its stock has also been a favorite on Wall Street due to the company’s promises on artificial intelligence and expectations that its GPUs will be enthusiastically purchased by customers. But until this week’s announcement with OpenAI, AMD’s rally had been largely built on hope.
Shares of AMD rose 24% on Monday, marking their biggest gain since 2002. It’s up 89% this year compared to Nvidia’s gain of 40%.
Nvidia’s control over the emerging market is so extensive that in September last year, during the waning days of the Biden administration, the company was reportedly subpoenaed by the Justice Department, but the report was dismissed. Sen. Elizabeth Warren, D-Mass., sent a letter to the Justice Department’s antitrust division while supporting an investigation.
The company’s growth, he wrote, “has been further fueled by Nvidia’s use of anticompetitive tactics that stifle competition and chill innovation.” Nvidia said at the time that he won on merit.
The deal OpenAI and AMD announced Monday could change the competitive dynamic.
This merger is expected to bring “double-digit billions” in revenue to AMD starting in the second half of next year. OpenAI could also own 10% of AMD if the stock hits its price targets in a few years.
AMD CEO Lisa Su called the deal a “win-win” in a call with reporters and said it was proof that her company’s chips were fast and affordable enough to compete with Nvidia’s.
He called OpenAI’s determination a “clear signal” that AMD’s GPUs and software deliver “the performance and economic value needed for the most demanding scale deployments.”
Nvidia CEO Jensen Huang said on CNBC’s Squawk Box on Wednesday that the OpenAI-AMD deal is “unique and surprising.”
“I was surprised that they would give away 10% of the company before they even founded it,” Huang said.
“Clever, I guess,” Huang said.
The deal also allows OpenAI to show that its contracts and investments with vendors like Nvidia are not exclusive to avoid potential antitrust consequences. OpenAI CEO Sam Altman said on social media that any AMD chips would be “incremental” to Nvidia purchases and that “the world needs a lot more computing.”
“To my knowledge, none of these are exclusive contracts that connect routes to other competitors,” said Alden Abbott, a senior research fellow at the Mercatus Center and former general counsel for the Federal Trade Commission. “I don’t see any arguments for monopolization or cartelization of AI vendors in the near term.”
Representatives from Nvidia, AMD and OpenAI declined to comment.
‘We are determined to build’
When it comes to Washington, D.C., regulators aren’t the only concern. Those pressures appear to have eased this year under the Trump administration’s Justice Department.
Semiconductor investors are more concerned about potential tariffs, particularly Section 232 tariffs focused on chips. President Donald Trump said the tariffs, which have not yet taken effect, would double the price of imported chips. But in August, the president initiated a major change.
“If you’re building or have committed to building in the United States – no doubt if you’ve committed to building in the United States – there will be no fees,” Trump said at an event. Apple investments. The Trump administration’s Artificial Intelligence Action Plan encourages the United States to export “full range” AI technology abroad so it can become the global standard.
It’s not clear exactly what would qualify for the exemption, said Ed Mills, Raymond James’ Washington policy analyst, adding that OpenAI’s investment in AMD could be an “exit pad” for the company.
Nvidia and OpenAI have already played a big role in Trump’s AI goals. Seer In January, when the president announced Project Stargate, which plans to invest up to $500 billion in U.S. artificial intelligence infrastructure.
CEO Dr. Lisa Su, AMD executives and industry leaders explain AMD’s vision for Advanced Artificial Intelligence.
Courtesy: AMD
In the AMD deal, OpenAI will use the company’s Instinct MI450 systems, which will begin shipping next year. For the first time, AMD is offering a “rack-scale” system and not just individual chips, which means AMD is the only company besides Nvidia to offer a full range of AI hardware technologies.
“By having OpenAI buy as much as it does from AMD, we now have a multiplayer race that is sort of dominated by Nvidia,” Mills said. “Thus, we increase the number of US companies that can compete in producing the US technology stack.”
There is also the China issue.
Both Nvidia and AMD have China-specific AI products that have been banned by the US government from shipping to the world’s second-largest economy, a major hub for AI research. The Trump administration reversed course over the summer, saying companies could export chips if they paid 15% of their revenue to the U.S. government, but they still needed export licenses.
Trump is expected to meet with Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation forum later this month. Recent reports suggest China could commit to investing $1 trillion in the US, and Mills said high-priced AI chips could be part of the deal.
AMD has in the past downplayed competition with Nvidia, instead pointing to potential opportunities in artificial intelligence. The company recently said the AI chip market could be worth $500 billion by 2028, and this week it said the OpenAI deal equates to at least “tens of billions of dollars in revenue.”
“I think they can get to 15% to 20% market share in a $500 billion market, whereas before they had no chance,” Bloomberg’s Singh said.
The Trump administration may not be as worried about antitrust issues, but Nvidia and AMD are in the early stages of a battle that’s expected to last many years, and there’s no telling who will be in the White House after Trump’s second term ends.
Antitrust regulators have paid close attention to the market in the past. The last time AMD took second place in chips was industry giant Intel.
FTC opened an investigation In 1991, he moved to Intel to investigate potential anti-competitive practices in the PC market, and AMD submitted an application. $2 billion antitrust lawsuit against the company that year. The FTC never filed charges, and AMD and Intel ultimately settled their cases.
Now AMD is worth nearly twice as much as Intel. And after a series of deals, Intel’s largest shareholder becomes the US government, followed by Nvidia.
WRISTWATCH: OpenAI’s deal spree
