In the world of AI, everyone owes everyone. AMD shares soared 40 per cent after it agreed to supply ChatGPT maker OpenAI with chips – and, unusually, to hand the start-up warrants for up to 10 per cent of its stock.
It follows a deal where sector kingmaker Nvidia can invest up to $100 billion in OpenAI.
OpenAI buys Nvidia’s chips, Nvidia reinvests the proceeds in OpenAI, and OpenAI can then use those funds to purchase still more Nvidia equipment.
Nvidia has also invested in CoreWeave, which borrows against Nvidia chips to supply OpenAI.
Meanwhile, Oracle’s market value has ballooned on expectations of hosting OpenAI’s data centres.
The AI boom has become what JPMorgan’s Michael Cembalest calls a “vendor-financing circle”: capital raised by one company is recycled into another, funding huge computing investments that generate revenue for a few suppliers.
Those revenues justify still more raises, higher valuations and bigger build-outs. It’s a circular economy where growth depends on a handful of interconnected firms.
It is a story of corporate mutual dependence, with suppliers, customers and investors all cross-wired around one company’s growth. “We are in a phase of the build-out where the entire industry’s got to come together and everybody’s going to do super well,” says OpenAI’s Sam Altman.
Perhaps, but while the arrangement props up share prices, it concentrates risk. If AI demand keeps soaring, it works beautifully. If not, these intertwined bets could unwind in synchrony.
Markets are pricing in a virtuous circle. However, the obvious risk is if ChatGPT growth falters, mutual benefit could flip into mutual impairment.
Whatever happens, says Ritholtz Wealth Management’s Ben Carlson, “the tech giants have decided they’re all in this together”.
[ Top companies keep talking about AI – but can’t explain the upsidesOpens in new window ]
