TLDR
- Nvidia announced plans to invest up to $100 billion in OpenAI through a strategic partnership
- Veteran tech investor James Anderson compared the deal structure to vendor financing practices from the dot-com era
- OpenAI’s valuation jumped from $300 billion to $500 billion in six months, raising bubble concerns
- The total computing capacity costs could reach $600 billion, with $350 billion going to Nvidia for chips
- Anderson said the investment gives him more reasons to worry about Nvidia than ever before
Nvidia and OpenAI announced a partnership last Monday that’s raising eyebrows across Wall Street. The chipmaker plans to invest as much as $100 billion in the AI company.
The funds will support new data centers requiring at least 10 gigawatts of power. The Financial Times reports total computing costs could hit $600 billion.
Nvidia stands to receive roughly $350 billion of that total for its advanced AI chips. The company’s shares jumped nearly 4% on the news, pushing its market cap above $4.5 trillion.
OpenAI now carries a valuation near $500 billion as the world’s most valuable private company. Despite ChatGPT’s 700 million monthly users, profitability remains elusive.
Dot-Com Era Echoes
James Anderson isn’t impressed. The British investor made early bets on Tesla, Amazon, and Tencent that paid off handsomely.
Now managing partner at Lingotto, Anderson sees troubling patterns in Nvidia’s latest move. The deal structure reminded him of vendor financing that plagued telecom companies during the dot-com crash.
OpenAI pays Nvidia cash for chips. Nvidia then invests that money back into OpenAI for non-controlling equity stakes.
“The words ‘vendor financing’ do not carry nice reflections to somebody of my age,” Anderson told the Financial Times. He noted similarities to telecom suppliers’ practices in 1999-2000.
Anderson said the arrangement doesn’t make him feel comfortable. He called it the most concerning development in Nvidia’s recent history.
Nvidia has invested in other AI ventures before. The company put $5 billion into Intel and owns 7% of CoreWeave. It also backs Elon Musk’s xAI.
AI Valuation Surge
Anderson pointed to rapid valuation increases as red flags. OpenAI’s value jumped from $300 billion in April to $500 billion today.
Competitor Anthropic nearly tripled in value from $60 billion in March to $170 billion last month. Nvidia briefly touched $4.5 trillion this week.
“That scale of jump and the pace with which it happened did bother me,” Anderson said. Until recently, he hadn’t seen clear bubble indicators in AI.
Microsoft and Amazon have made similar investments. Microsoft ranks among OpenAI’s largest backers, while Amazon poured money into Anthropic.
Some analysts worry these circular deals primarily boost chip demand. Critics draw parallels to the vendor financing that preceded the dot-com crash.
Supporters argue today’s AI leaders differ from 1990s startups. These are profitable, cash-rich companies with deep pockets.
Market Outlook
The AI trade has expanded beyond mega-cap tech stocks recently. Palantir and Oracle posted strong gains in recent weeks.
TipRanks shows Nvidia with a Strong Buy rating based on 36 Buy, 2 Hold, and 1 Sell recommendations. The consensus price target of $213.35 implies 14.35% upside potential.
The highest analyst target reaches $250 per share.
