Nvidia and OpenAI announced a partnership with Nvidia investing up to $100 billion to support new data centers with 10 gigawatts of power. The computing capacity could cost nearly $600 billion, with $350 billion potentially going to Nvidia for its advanced chips used in AI models. Shares of Nvidia rose nearly 4% after the report, solidifying its position as the largest company in the world with a market cap over $4.5 trillion. Demand for its AI chips remains strong. OpenAI, valued at close to $500 billion, boasts over 700 million monthly users for ChatGPT, but its path to profitability is uncertain.
Nvidia has made large investments in AI-related companies, including $5 billion in Intel, a 7% stake in CoreWeave, and investments in Elon Musk’s xAI. Some analysts are concerned about the circular nature of these investments, likening them to vendor-financing subsidies from the dot-com bubble. They also warn of a potential AI bubble, suggesting the investments are meant to boost demand for Nvidia’s chips. Mega-cap companies like Microsoft and Amazon have also made significant investments in AI startups that rely on their cloud-computing products.
Unlike the dot-com bubble, today’s race to artificial general intelligence involves profitable mega-cap companies investing hundreds of billions to stay ahead in the AI race. The risk lies in underinvesting and losing the race, not in overspending. Valuations are not as extreme as during the dot-com bubble, and AI advancements could lead to significant productivity gains. Diversified exposure to AI beneficiaries via ETFs like Global X AI & Tech ETF, iShares Future AI & Tech ETF, and Roundhill Generative AI & Tech ETF may offer attractive returns.
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Read more at Nasdaq: AI Stocks: Bubble or Boom Ahead?