OpenAI’s Dealmaking Web: A Closer Look

OpenAI, under the leadership of CEO Sam Altman, is rapidly expanding its influence across the artificial intelligence landscape.

The AI powerhouse, boasting a valuation of $500 billion, has been aggressively securing monumental infrastructure agreements, some reaching into the tens and even hundreds of billions of dollars, despite its substantial cash burn.

These significant expenditures are demonstrably shaping market dynamics.

The Nasdaq and S&P 500 recently attained record highs following Nvidia’s agreement to potentially invest up to $100 billion in OpenAI. This development trails a prior $300 billion arrangement between OpenAI and Oracle in July, part of the ambitious Stargate program, a comprehensive $500 billion infrastructure initiative supported by SoftBank.

OpenAI’s commitments extend further. CoreWeave announced an agreement to furnish OpenAI with up to $22.4 billion in AI infrastructure, escalating from an initial commitment of $11.9 billion made in March. Broadcom also disclosed securing a new $10 billion client earlier this month, prompting analysts to speculate that OpenAI is the beneficiary.

While OpenAI emphasizes scaling as crucial for driving innovation and future AI breakthroughs, investors and analysts are expressing concerns over the exorbitant sums and the company’s increasing reliance on a complex network of infrastructure partners.

For example, OpenAI acquired a $350 million stake in CoreWeave prior to its IPO in March. Nvidia solidified its financial involvement in OpenAI by participating in a $6.6 billion funding round in October of the previous year. Oracle is reportedly allocating approximately $40 billion to procure Nvidia chips to power an OpenAI Stargate data center, according to the Financial Times. CoreWeave also disclosed an order worth at least $6.3 billion from Nvidia earlier this month.

Nvidia’s $100 billion investment in OpenAI will grant the chipmaker equity in the startup, creating a dual avenue for revenue generation.

OpenAI anticipates generating $13 billion in revenue this year, according to CFO Sarah Friar. She stated that technology booms necessitate substantial investments in infrastructure.

“When the internet was getting started, people kept feeling like, ‘Oh, we’re over-building, there’s too much,'” Friar commented. “Look where we are today, right?”

Altman affirmed his willingness to operate the company at a loss to prioritize growth and strategic investments.

Some analysts are signaling caution, suggesting that OpenAI’s arrangement with Nvidia mirrors vendor financing patterns that contributed to the dot-com bubble burst in the early 2000s.

Nvidia has been a central benefactor of the AI surge, serving as the primary provider of graphics processing units (GPUs) essential for training models and executing large AI workloads. Nvidia’s investment in OpenAI, disbursed over several years, aims to aid the startup in constructing data centers powered by Nvidia GPUs. Some financial analysts noted that Nvidia stands to benefit from the investment by OpenAI because data centers will require Nvidia’s most advanced products. The GPU maker will receive staggered payments over the term of the agreement and can count this as revenue.

“One doesn’t need to be skeptical about AI’s overall promise to perceive this announcement as a concerning indicator of the entire space’s self-referential nature,” Bespoke Investment Group wrote in a note. “If NVDA must supply the capital that becomes its revenues to sustain growth, the entire ecosystem risks unsustainability.” They added that this type of circular investment schemes, or vendor financing, are a red flag for investors to consider.

Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, noted that the OpenAI-Nvidia deal dredged up memories of companies from the late 1990s.

However, he pointed out that the scale of this transaction is “so much bigger in terms of dollars.”

“For this entire massive experiment to function without triggering substantial losses, OpenAI and its peers must now generate vast revenues and profits to fulfill all the obligations they are undertaking while simultaneously providing returns to their investors,” Boockvar said.

An OpenAI spokesperson referred media to Altman’s and Friar’s recent statements, emphasizing that the company is pursuing “a once-in-a-century opportunity that demands ambition equal to the moment.”

The total demand for compute power could reach an astronomical 200 gigawatts by 2030, according to Bain & Company’s 2025 Technology Report. Constructing sufficient data centers to address this anticipated demand would necessitate approximately $500 billion in annual investment, implying that AI companies would need to collectively generate $2 trillion in annual revenue to offset these costs.

Even if companies allocate all their resources to investing in the cloud and data centers, “the amount would still fall $800 billion short of the revenue needed to fund the full investment,” Bain stated.

Despite the evident challenges ahead, OpenAI’s Altman dismissed concerns, countering the notion that the infrastructure spending spree is excessive.

“This is what it takes to deliver AI,” Altman stated. “Unlike previous technological revolutions or prior iterations of the internet, there is a massive amount of infrastructure required, and this is just a small sample of it.”