TLDR
- Elon Musk’s xAI secures $20 billion Nvidia GPU deal for Memphis Colossus 2 data center
- Nvidia forecasts global data center spending will surge from $600 billion in 2025 to $3-4 trillion by 2030
- OpenAI partnership includes up to $100 billion investment for 10 gigawatts of compute capacity
- Stock trades at 28 times forward earnings with analysts projecting 33% revenue growth for FY 2027
- Microsoft, Alphabet, and Amazon generating $25-30 billion annually from AI cloud services
Nvidia just secured another major AI contract. Elon Musk’s xAI is reportedly signing a $20 billion deal to purchase GPUs for its Memphis Colossus 2 data center expansion.
The deal represents another win for Nvidia as it fends off competition from AMD and Broadcom. Both competitors recently landed deals with OpenAI, but xAI chose Nvidia’s hardware instead.
While $20 billion sounds huge, it needs context. Nvidia’s data center revenue hit $41.1 billion in Q2 alone. The xAI deal will be spread across multiple quarters, adding just a few percentage points to quarterly growth.
What matters more is the signal it sends. xAI chose Nvidia despite cheaper alternatives from competitors.
Nvidia’s Long-Term Growth Outlook
CEO Jensen Huang made a big prediction during Nvidia’s Q2 conference call. He projects global data center capital expenditures will reach $600 billion by end of 2025.
That figure jumps to $3-4 trillion by 2030. This represents a compounded annual growth rate of 42% over five years.
OpenAI hasn’t abandoned Nvidia despite signing deals with competitors. The companies announced a September partnership where Nvidia provides 10 gigawatts of compute capacity. OpenAI will invest up to $100 billion in return.
Some analysts worry about circular economics between AI partners. But OpenAI’s subscriber base keeps growing rapidly, validating the business model.
Big Tech Earnings Drive Stock Movement
Nvidia shares have traded sideways since August. The stock needs a catalyst to break out of its current range.
Next week’s earnings from Microsoft, Alphabet, and Amazon could provide that spark. Investors want proof these companies can build massive AI data centers at scale.
UBS analyst Karl Keirstead estimates the three tech giants generate $25-30 billion annually from AI customers. He said monitoring AI data center construction will be crucial for revenue forecasts.
Keirstead noted that demand from model providers is so intense that slow enterprise adoption doesn’t matter yet. The infrastructure buildout phase is keeping growth strong.
Stock Valuation and Analyst Expectations
Wall Street analysts forecast 33% revenue growth for Nvidia’s FY 2027. But analysts have consistently underestimated Nvidia’s performance.
The stock trades at 28 times forward earnings. If Nvidia can maintain 40% annual growth over five years, current prices will look cheap.
AMD shares fell 0.5% in premarket trading while Broadcom gained 1.2%. Nvidia edged up 0.1% before falling 0.8% during regular trading.
The xAI deal and OpenAI partnership solidify Nvidia’s position as the preferred AI chip supplier. Competition is heating up, but major players keep choosing Nvidia for large-scale deployments.
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