I used to be fallacious.
That’s not one thing I say typically. A minimum of not in print. (My spouse would possibly 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 huge 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 fallacious about who would make the primary huge transfer.
As a result of it wasn’t Amazon.
It was OpenAI.
And the deal that firm simply signed with AMD might change the steadiness of energy in AI {hardware} without end.
A Crack in Nvidia’s Armor
For years, Nvidia has been essentially the most highly effective identify in synthetic intelligence chips.
Its GPUs energy virtually 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 cope with OpenAI to provide high-performance GPUs for its subsequent era of knowledge facilities.
And the phrases of the deal are gorgeous.
It offers OpenAI the appropriate to buy as much as 160 million AMD shares for a penny every if the chipmaker meets key milestones. These milestones embody deploying as much as six gigawatts of chips and reaching future stock-price targets as excessive as $600.
If AMD hits these numbers, OpenAI might personal about 10% of the corporate.
To be clear, that is an unprecedented association between a chipmaker and its largest buyer.
As a substitute 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 firms.
Each new era of OpenAI’s large fashions has required extra GPUs, extra energy and more cash.
And the corporate has depended virtually totally 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 tens of millions of chips to coach its new fashions and run inference for a whole bunch of tens of millions of customers. However each greenback saved on compute is a greenback that could possibly be redirected into mannequin improvement.
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 supplies.
And this new partnership offers OpenAI one thing it hasn’t had earlier than in terms of AI {hardware}: leverage.
However the firm isn’t sacrificing high quality to achieve this leverage.
AMD’s newest accelerator, the MI325X, started delivery this summer time.
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 as we speak’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 urged AMD has an actual shot at taking a number of the AI large’s market share.
And he or she is likely to 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 might go up even sooner.
Right here’s My Take
Amazon and OpenAI are two of the largest consumers of computing energy on the planet. AMD’s chips are additionally utilized by Microsoft and Meta.
Collectively, these firms drive a lot 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 battle over worth and efficiency.
And that would stage the taking part in discipline 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. Just a few months in the past, I informed readers there have been a number of causes to imagine it was about to go increased.
As of this morning, AMD is up round 370% since I first really helpful it in 2020.
And I nonetheless assume there’s a huge payoff coming sooner or later.
If AMD captures simply 15% of the AI chip market, it might translate into billions of {dollars} extra in annual income.
And OpenAI, now instantly invested in AMD’s success, has each purpose to assist make it occur.
Meaning AMD could possibly be the primary firm in years to really 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 growing. 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 might 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 cope with OpenAI would possibly simply be the beginning of an actual battle for the way forward for AI {hardware}.
Regards,
Ian KingChief Strategist, Banyan Hill Publishing
Editor’s Word: We’d love to listen to from you!
If you wish to share your ideas or strategies in regards to the Each day Disruptor, or if there are any particular subjects you’d like us to cowl, simply ship an e mail to dailydisruptor@banyanhill.com.
Don’t fear, we gained’t reveal your full identify within the occasion we publish a response. So be at liberty to remark away!
