Nvidia and OpenAI Abandon $100 Billion Partnership for $30 Billion Equity Deal
Nvidia Corp., the world's most valuable company, is in the final stages of negotiating a $30 billion equity investment into OpenAI. This move replaces the long-term $100 billion commitment the companies agreed upon last year, according to sources familiar with the matter. The investment could be concluded as early as this weekend.
Details of the New Funding Round
The $30 billion investment forms part of a larger funding round that is on track to raise more than $100 billion. This round will value the ChatGPT maker at $730 billion, not including the new capital infusion. OpenAI plans to reinvest much of this new capital into Nvidia hardware, but the companies will not proceed with the $100 billion multiyear investment partnership they announced in September.
The retreat from the agreement, which was announced with significant fanfare in September, comes amid investor jitters about the health of the AI sector. These concerns have contributed to a 17 percent decline in U.S. tech stocks since the start of the year.
Background on the Original Agreement
Last year's deal, announced as a "letter of intent," closely tied together the two companies at the heart of the AI boom. It helped propel Nvidia above $5 trillion in market value just a few weeks later. The agreement accelerated a frenzied period of dealmaking for Sam Altman's AI start-up, which forged complex agreements with rival chipmakers AMD and Broadcom, as well as cloud providers including Oracle.
While welcomed by stock market investors at the time, the spate of agreements tying together suppliers, customers, and investors in the AI sector prompted concern among some analysts. They raised questions about the circular structure of these deals and the potential for a growing bubble in the space.
Terms of the Scrapped Deal
Under the terms of the $100 billion agreement, Nvidia would have invested ten increments of $10 billion as OpenAI's demand for computing power grew over several years. In return, Nvidia would have received a significant stake in the AI start-up. OpenAI, in turn, planned to buy millions of Nvidia's AI processors as part of plans to deploy up to 10 gigawatts of new computing capacity.
However, the deal never progressed from a memorandum of understanding to a formal agreement. In January, The Wall Street Journal reported the deal was "on ice." It has now been replaced by a more straightforward arrangement in which Nvidia will invest up to $30 billion in return for OpenAI stock.
Future Implications and Company Statements
This new funding will support the build-out of gigawatts of new computing capacity and will likely be followed by further deals over time, according to people close to the companies. Both OpenAI and Nvidia have declined to comment on the specifics of the negotiations.
Sam Altman and Nvidia chief Jensen Huang have attempted to dispel reports of cooling relations between their companies. "We love working with Nvidia and they make the best AI chips in the world. We hope to be a gigantic customer for a very long time," Altman said on X earlier this month.
The shift from a complex, multiyear partnership to a simpler equity investment reflects the evolving dynamics in the high-stakes AI industry, where rapid changes in market conditions and investor sentiment can quickly alter strategic alliances.
