Nvidia’s announcement of a $100 billion investment in OpenAI is a strategic move to enhance demand for its chips, reminiscent of Cisco’s circular financing during the internet bubble. This funding supports OpenAI’s deployment of Nvidia systems, significantly increasing power needs to about 10 gigawatts, equating to 4-5 million GPUs—roughly Nvidia’s expected yearly shipments. However, this investment serves not just growth but also defense against competition, as major tech companies develop custom AI chips. While securing future demand, Nvidia is financing a customer that hasn’t proven a profitable model, leading to potential risks. Like Cisco, Nvidia’s approach might face challenges if the AI boom falters or if hyperscalers shift to more affordable solutions. Though currently dominant in AI infrastructure, Nvidia’s reliance on OpenAI could be a double-edged sword, creating vulnerability if the partnership falters. Investors should exercise caution given these dynamics in the evolving AI market.
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