Chip manufacturer AMD has reached a multi-billion dollar partnership with artificial intelligence company OpenAI, shaking up the global AI chip market. This transaction not only significantly boosted AMD's stock price, but was also regarded by investors as a strong challenge to the AI ​​chip market currently dominated by NVIDIA (NVIDIA).

As part of the agreement, OpenAI will have the opportunity to acquire approximately 10% of AMD's equity. In this regard, competitor NVIDIA CEO Jensen Huang publicly stated that he was surprised by AMD's decision to sell 10% of the company's shares before the product was built, but he also thought this strategy was smart.

AMD stock surges 43%, warrants for 10% stake in OpenAI

AMD’s cooperation agreement with OpenAI was reached on Monday, and the deal is huge. OpenAI promises to purchase billions of dollars in AI equipment in the next few years and will purchase 6GW of AMD chips, including AMD’s upcoming MI450 series. As a key component of this massive purchase, OpenAI will receive warrants for up to 160 million shares of AMD stock. The exercise and eventual vesting of these warrants will be based on deployment volume and AMD's stock price performance. If OpenAI chooses to exercise the warrants in full, the company would be able to acquire approximately 10% ownership of AMD.

The market has responded extremely enthusiastically to this collaboration, interpreting this partnership as AMD being able to become a potential challenger to NVIDIA's top position in the AI ​​chip market. Spurred by this news, AMD stock prices continued to rise strongly. AMD's stock price climbed 11% on the 8th alone, bringing the stock's cumulative gain so far this week to 43%, which is expected to record its best weekly performance since April 2016. This has also boosted AMD's market value to $380 billion.

Huang Renxun: Surprised that the equity was sold before the product was completed

AMD Chairman and CEO Su Zifeng told reporters on the 6th that the transaction is a win-win result, and emphasized that AMD's AI chips are good enough and can be used for large-scale deployments built by OpenAI and cloud providers. In this regard, Huang Jensen described the deal between Open AI and AMD in an interview with CNBC on the 8th as imaginative, unique and surprising. What surprised him, though, was that they were so excited about their next-generation product that they were willing to give up 10% of the company before the product was even built. Still, he summed up the deal by saying "it's smart."

The market believes that the equity exchange transaction between AMD and OpenAI has significantly intensified the competition in the AI ​​chip industry. Especially since OpenAI has close historical ties to NVIDIA in the past. In addition, in addition to AMD, cloud service providers are also actively developing their own chips in an attempt to catch up in the field of AI chips.

NVIDIA’s hundreds of billions of dollars of investment and direct sales model

Compared with AMD’s equity exchange model, the cooperation method between NVIDIA and OpenAI is different. Huang Renxun pointed out that NVIDIA’s investment in OpenAI is “very different” in nature from AMD’s transaction.

NVIDIA announced at the end of last month that it plans to invest up to $100 billion in OpenAI over the next ten years. In exchange, OpenAI agreed to build and deploy a 10GW NVIDIA system. Huang Renxun once stated that the computing power requirement of this 10GW is approximately equivalent to the number of 4 million to 5 million GPUs. Huang Renxun emphasized that NVIDIA’s investment strategy allows the company to sell directly to OpenAI, which is seen as the core difference from AMD’s transaction model.

NVIDIA’s huge investment commitment to OpenAI has also raised concerns about the “circular nature” of such AI infrastructure transactions. So when asked how OpenAI would raise funds to pay for the deal with NVIDIA, Huang frankly said they don't have the funds yet. But he expressed optimism about OpenAI’s future funding sources, including revenue that is growing exponentially, as well as equity or debt financing. Huang Renxun explained that OpenAI has multiple ways to raise this capital. Huang Renxun also added that OpenAI gives us the opportunity to invest with other investors. He also revealed his personal enthusiasm for investing in OpenAI, saying that after NVIDIA’s previous investment in OpenAI, his only regret was not investing more.

NVIDIA looks forward to participating in additional investments

In consolidating its leadership position in AI infrastructure, NVIDIA is not only collaborating with OpenAI but also actively participating in broader ecosystem investments. Jen-Hsun Huang confirmed NVIDIA’s participation in the latest round of financing for Elon Musk’s AI startup xAI. xAI is said to be seeking to raise about $20 billion, according to Bloomberg. Huang expressed super excitement about the funding opportunity, adding that he wishes he could give Elon Musk more money because almost anything Elon Musk is involved in, you really want to be involved in.

In addition, NVIDIA has also invested in CoreWeave, an AI data center operator. Jensen Huang sees CoreWeave as one of several excellent investments the company has made recently. He described these companies supported by NVIDIA as truly special companies and emphasized that they are part of the NVIDIA ecosystem and are building AI infrastructure for the world. These intensive capital and cooperation strategies highlight the fierce battle between the two major chip companies for market dominance in the AI ​​era.