Nvidia's shares are up over 48% over the last year. That's because the company is involved in the hottest business segment right now, Artificial Intelligence (AI). Nvidia happens to do business in a sexy area of AI; it is the leading manufacturer of graphic processing unit (GPU) chips that are typically used in devices like smartphones and computers. However, GPUs excel as AI accelerators that speed up the processing of information.
Is Nvidia's leading market share in AI accelerators in danger?
Yes. AMD's deal gives OpenAI incentive to use its GPUs.
44.44%
No. Nivida remains the leader and will remain on top.
55.56%
GPUs use parallel processing which means that thousands of cores perform calculations at the same time on huge amounts of data. A Central Processing Unit (CPU), on the other hand, deals with information differently. A CPU processes data sequentially as these chips move from task to task which doesn't work as well with the matrix multiplication used for AI.
Nvidia's shares fall after the opening as AMD announces its deal with OpenAI
On Monday morning, Nvidia's shares declined as much as $4.39 or 2.3%% to $183.33 after one of its rivals, Advanced Micro Devices (AMD) announced a huge multibillion-dollar deal with OpenAI that could eat into Nvidia's dominant market share. AMD shares soared $45.45 or 27.6% to $210.12 this morning after announcing that OpenAI plans to deploy 6 gigawatts of AMD's Instinct GPUs. Not only is Nvidia's position as the AI accelerator leader threatened by AMD's deal, but other tech companies also such as Google and Amazon have been involved in designing AI chips as well.
Nvidia's chart shows the incredible rise in the stock that started in 2002. | Image credit-Google
Nvidia's shares have been rebounding since the opening bell. As of 11:30 am ET, the stock is off only $1.51 or .81% to $186.10. Most analysts remain bullish on Nvidia. 60 analysts out of the 66 tracked by FactSet have a Buy rating on the shares. Five have the stock rated as a hold and one lists it as being a Sell. One of the 60 analysts who consider Nvidia a buy is Melius Research’s Ben Reitzes.
Reitzes says, "OpenAI is scaring all the hyperscalers into spending in order to achieve 'digital superintelligence.' Other than Nvidia and Apple, others in the Mag 7 cannot let Sam Altman win by spending more, not even Microsoft." The analyst envisions continued spending on AI infrastructure which helps Nvidia and its shares. The analyst says that with OpenAI spending over $1 trillion for AI infrastructure, it will push other tech firms to spend more on AI.
He says that all of this spending on AI will take AI compute and networking TAM (total addressable market) to over $2 trillion by 2030. "If the TAM is close to that size, it’s hard to envision scenarios where Nvidia doesn’t get 40%+ of that figure," Reitzes states. Obviously, we are playing for real money and a seat at the table. We are in the early innings of the AI ballgame with much of the public still unaware of how even AI on a smartphone can make their lives easier.
OpenAI gets a warrant to buy 10% of AMD at a sweetheart price
As part of the transaction, OpenAI will receive a warrant giving it the right to purchase as much as 160 million AMD shares for 1 cent apiece. If exercised, OpenAI will end up with 10% of AMD for only $1.6 million. Considering that AMD currently is valued at $342.7 billion, that's a good deal for OpenAI. Nvidia, as a point of comparison, is the most valuable publicly traded U.S. stock with a valuation of $4.5 trillion.
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In late September, OpenAI signed a deal with Nvidia that will see it use 10 gigawatts of Nvidia's GPUs to power datacenters. With that deal, Nvidia will invest as much as $100 billion in OpenAI. The latter is the AI R&D company that developed ChatGPT. OpenAI also signed a deal recently with Broadcom valued at up to $10 billion. Broadcom will supply OpenAI with custom-bult AI chips to decrease the latter's reliance on Nvida and improve the performance and efficiency of its large language models.
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