Nvidia, the dominant producer of AI accelerator chips, is set to abandon its earlier planned $100 billion (£74bn) investment in OpenAI in favor of a $30 billion contribution to the start-up’s current funding round, according to a report from the Financial Times.
The deal, which is in the final stages of negotiation, is expected to be concluded as soon as this weekend, sources familiar with the matter told the paper. The investment is part of a larger fundraising effort that will raise more than $100 billion for OpenAI, valuing the company at $730 billion before the new money is injected.
Shift in Strategy
This marks a dramatic reversal from the September announcement, which was greeted with widespread skepticism by analysts due to its circular structure and vague terms. Under the original plan, Nvidia would have acquired a significant stake in OpenAI through a $100bn capital injection, but critics pointed out the lack of clarity on how the funds would be deployed and whether it was merely a way for both companies to inflate their valuations.
Despite the skepticism, investors initially reacted positively, and Nvidia’s shares briefly surged above $5 trillion a few weeks after the disclosure. However, the deal never progressed beyond a memorandum of understanding, and in January, the Wall Street Journal reported that it had been “on ice” as investor caution increased in the AI space, following a wave of hype around generative AI that began with the release of ChatGPT in late 2022.
OpenAI’s Financial Picture
OpenAI has seen explosive growth, with its annualized revenue run rate surpassing $20 billion earlier this year. However, its expenses are equally massive: the company has committed over $1.5 trillion to pay for AI infrastructure and chips with providers including AMD, Broadcom, and Oracle. This spending far exceeds its current revenue, highlighting the capital-intensive nature of developing and deploying advanced AI models.
The start-up is expected to hold an initial public offering (IPO) sometime this year, which could help raise additional funds to cover its commitments. The current funding round is seen as a bridge to that public offering, allowing OpenAI to secure capital from strategic investors before listing on the stock exchange.
Other Investors and Reactions
SoftBank is reportedly planning to invest $30 billion in OpenAI’s current funding round, while Amazon could contribute up to $50 billion as part of a broader arrangement that may include the use of OpenAI models in Amazon Web Services (AWS). MGX, Microsoft, and several venture capital firms are also said to be lining up investments.
The involvement of multiple deep-pocketed investors underscores the strategic importance of AI to the technology industry. Nvidia’s change of heart—swapping a direct $100bn investment for a smaller stake alongside other big players—reflects the evolving dynamics of AI investment, where companies are increasingly cautious about putting all their eggs in one basket.
Background on the AI Chip Market
Nvidia’s chips, particularly its H100 and B100 GPUs, are the gold standard for training and running large language models like those developed by OpenAI. With demand outpacing supply, Nvidia has been able to dictate terms to customers, but the company faces intensifying competition from custom chips designed by hyperscalers like Google and Amazon, as well as from AMD and Intel.
OpenAI, for its part, is investing heavily in its own chip design efforts to reduce reliance on Nvidia, hiring engineers and partnering with Broadcom on custom AI accelerators. This strategic move could reshape the balance of power in the AI hardware sector over the long term.
The shift from a $100bn investment to a $30bn contribution also signals a cooling of the euphoria that surrounded AI startups in 2023 and early 2024. Venture capital funding for AI companies has declined in recent quarters as investors demand clearer paths to profitability. OpenAI’s enormous spending commitments have raised questions about whether it can generate sufficient returns to satisfy its backers, especially if the AI industry experiences a cyclical downturn.
Despite these concerns, the current funding round—expected to close within weeks—demonstrates that major players like Nvidia, SoftBank, and Amazon remain confident in OpenAI’s long-term prospects. The startup has consistently pushed the boundaries of AI, releasing new versions of its GPT model and expanding into areas such as reasoning, multimodal AI, and agentic systems.
The earlier deal’s termination also highlights the regulatory scrutiny such large transactions can attract. Antitrust authorities in the US and Europe have expressed concerns about vertical integration between chipmakers and AI developers. Nvidia’s decision to dial back its investment may be partly aimed at avoiding a lengthy regulatory review.
In the wider context, the $100bn figure originally touted for Nvidia’s OpenAI deal was not unusual for the tech sector; Microsoft has committed similar sums to OpenAI in the past. But the structure of the deal—whereby Nvidia would have effectively invested in itself through OpenAI’s chip purchases—was seen as unusual and potentially unstable. The new arrangement is more straightforward: Nvidia contributes capital alongside other investors, and OpenAI retains the freedom to source chips from multiple vendors.
With an IPO on the horizon, OpenAI is likely to continue attracting high-profile investors. The company’s valuation of $730bn places it among the most valuable private companies in the world, rivaling major publicly traded tech giants. How it manages its cost structure and competitive pressures will be a key story to watch in the months ahead.
Source: Silicon UK News