I used to be unsuitable.
That’s not one thing I say typically. At the very least 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 suppose that’s true. However I used to be unsuitable 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 stability of energy in AI {hardware} ceaselessly.
A Crack in Nvidia’s Armor
For years, Nvidia has been essentially the most highly effective identify in synthetic intelligence chips.
Its GPUs energy nearly 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 prospects 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 produce high-performance GPUs for its subsequent technology of information facilities.
And the phrases of the deal are gorgeous.
It provides OpenAI the proper to buy as much as 160 million AMD shares for a penny every if the chipmaker meets key milestones. These milestones embrace 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 greatest buyer.
As an alternative 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 corporations.
Each new technology of OpenAI’s huge fashions has required extra GPUs, extra energy and more cash.
And the corporate has depended nearly fully 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 lots of of tens of millions of customers. However each greenback saved on compute is a greenback that may very well 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 knowledge middle income jumped 154% 12 months over 12 months final quarter, hitting $22.6 billion.
However its gross margins are close to 75%, a degree few industries can maintain with out inviting competitors.
That’s precisely what AMD gives.
And this new partnership provides 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 transport 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 at this time’s fashions.
Earlier this 12 months, AMD’s CEO Lisa Su stated she expects the marketplace for AI compute infrastructure to soar previous $500 billion within the subsequent three years.
She additionally steered AMD has an actual shot at taking among the AI big’s market share.
And he or she may be proper.
AMD’s knowledge middle 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 patrons of computing energy on the planet. AMD’s chips are additionally utilized by Microsoft and Meta.
Collectively, these corporations drive many 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 may flip the chip battle right into a easy struggle over worth and efficiency.
And that would degree 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 advised readers there have been a number of causes to consider 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 suppose 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 straight invested in AMD’s success, has each motive to assist make it occur.
Which means AMD may very well 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 rising. And no single firm can meet this demand alone.
Again when ChatGPT launched in 2022, AI knowledge 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 struggle for the way forward for AI {hardware}.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
Editor’s Observe: We’d love to listen to from you!
If you wish to share your ideas or options in regards to the Day by day Disruptor, or if there are any particular subjects you’d like us to cowl, simply ship an electronic mail to [email protected].
Don’t fear, we gained’t reveal your full identify within the occasion we publish a response. So be happy to remark away!