AMD Deal with OpenAI to Challenge Nvidia’s AI Chip Dominance

Back in the 1990s, when Intel reigned supreme in the PC chip market, Advanced Micro Devices (AMD) served as a crucial counterweight, helping Intel sidestep potential antitrust scrutiny. The dynamic, three decades later, is showing signs of repeating itself, but this time with Nvidia.

Nvidia currently commands a staggering 90% share of the graphics processing unit (GPU) market for artificial intelligence (AI) workloads. AMD’s recent announcement of a potentially multi-billion dollar GPU deal with OpenAI signals its intent to challenge Nvidia’s dominance in the rapidly expanding AI chip arena, analysts suggest.

“Nvidia practically holds a monopoly right now,” notes Mandeep Singh, senior analyst at Bloomberg Intelligence, “with AMD possessing only a small single-digit share in the $250 billion market for AI data center silicon.” This market is fueled by the voracious compute demands of generative AI models and the specialized hardware necessary to train and deploy them.

Until now, Nvidia and OpenAI have largely shaped the narrative of the AI revolution. Nvidia’s soaring GPU sales have propelled its market capitalization to a staggering $4.5 trillion, while OpenAI’s private market valuation has climbed to $500 billion, fueled by the widespread adoption of ChatGPT and its ambitious data center expansion plans.

Nvidia’s strategic investment in OpenAI is no secret. Last month, the company reportedly committed up to $100 billion to bolster OpenAI’s infrastructure development. This close relationship has, however, drawn some scrutiny, prompting concerns about market concentration and the potential for anti-competitive practices.

While AMD remains a distant runner-up, its stock has enjoyed significant gains, driven by promises in AI and expectations of strong GPU demand. However, until the recent OpenAI deal, much of AMD’s rally was based on speculation rather than concrete results. The OpenAI partnership gives credence to AMD’s AI aspirations.

AMD’s stock surged 24% following the announcement, marking its largest single-day increase since 2002. Year-to-date, AMD’s stock is up 89%, outpacing Nvidia’s 40% gain. This reflects investor confidence in AMD’s potential to carve out a significant share of the AI chip market.

Nvidia’s dominance in the AI chip market has not gone unnoticed by regulators. Last year, the company was reportedly subpoenaed by the Department of Justice (DOJ), though Nvidia denied receiving said subpoena. Previously, Senator Elizabeth Warren had voiced her support for a DOJ probe into Nvidia.

Warren argued that Nvidia’s remarkable growth “has been supercharged by Nvidia’s use of anticompetitive tactics that have choked off competition and chilled innovation.” Nvidia has countered these allegations, maintaining that its success is based on its superior technology.

The newly announced deal between OpenAI and AMD has the potential to dramatically alter this competitive landscape. The partnership is expected to generate “double-digit billions” in revenue for AMD, beginning in the latter half of the following year. Furthermore, OpenAI could potentially acquire up to 10% of AMD’s equity if the stock reaches specific price targets over several years.

AMD CEO Lisa Su characterized the agreement as a “win-win” proposition, emphasizing that her company’s chips are now competitive with Nvidia’s in terms of both performance and price.

Su described OpenAI’s commitment as a “clear signal” that AMD’s GPUs and software deliver the performance and economic value “required for the most demanding at-scale deployments,” a nod to the increasingly complex and computationally intensive AI models being deployed.

Nvidia CEO Jensen Huang, in an interview with CNBC, described the OpenAI-AMD deal as “unique and surprising,” specifically addressing the equity component. “I’m surprised that they would give away 10% of the company before they even built it,” Huang remarked, calling it “clever, I guess.”

Beyond the financial benefits, the agreement allows OpenAI to diversify its supplier base and demonstrate that its contracts and investments with companies like Nvidia are non-exclusive, mitigating potential antitrust concerns. OpenAI CEO Sam Altman clarified on social media that any AMD chips utilized would be “incremental” to its Nvidia purchases, stating that “the world needs much more compute.”

“None of these things are, as far as I’m aware, exclusive contracts tying up avenues to other competitors,” explained Alden Abbott, senior research fellow at Mercatus Center and a former general counsel at the Federal Trade Commission. “I don’t see any argument that in the near term that shows monopolization or cartelization of AI suppliers.” However, the long-term implications of the partnership and its impact on market competition remain to be seen and are likely to be a focal point for regulators.

Neither Nvidia, AMD, nor OpenAI have offered official comments on the matter beyond initial statements.

Beyond regulatory oversight, semiconductor companies are increasingly concerned about potential tariffs, particularly Section 232 tariffs targeting imported chips. The previous administration had previously suggested doubling the price of imported chips, however in August, a carve-out was introduced.

“If you’re building in the United States or have committed to build – without question committed to build in the United States – there will be no charge,” the former President stated at an event highlighting investments in domestic production. This push for domestic semiconductor manufacturing aligns with broader efforts to ensure U.S. leadership in AI and related technologies.

Ed Mills, a Washington policy analyst at Raymond James, noted that the qualifications for this exemption remain uncertain. The OpenAI investment in AMD might serve as a strategic move for the company to navigate these potential tariff issues.

Nvidia and OpenAI have already played significant roles in domestic AI initiatives, joining forces with Oracle in Project Stargate, a plan to invest up to $500 billion in U.S. AI infrastructure. This reflects the growing recognition of AI as a critical technology and the need for robust domestic capabilities.

Under the terms of the AMD deal, OpenAI will utilize AMD’s Instinct MI450 systems, slated for release next year. This marks AMD’s foray into offering “rack-scale” systems, signifying its strategic focus on providing comprehensive AI hardware solutions. This positions AMD as the only company besides Nvidia capable of delivering a full AI hardware technology stack.

“By having OpenAI purchase as much as they are from AMD, now we have a multiplayer race that seems to be kind of dominated by Nvidia,” Mills observed. “So we’re expanding the number U.S. companies that are going to be able to compete in producing that U.S. tech stack.” This is seen as a positive development for promoting competition and innovation in the domestic AI ecosystem.

The China factor is also a notable consideration. Both Nvidia and AMD have developed China-specific AI products that have faced export restrictions from the U.S. government, given China’s prominence as a center for AI research. While some restrictions have been eased, export licenses remain a requirement.

Recent reports indicate that China could potentially pledge trillions of dollars in investments in the U.S., and high-value AI chips could become a crucial component of such agreements.

AMD has historically downplayed competition with Nvidia, emphasizing the vast opportunities within the growing AI market. The company has projected the AI chip market to reach $500 billion by 2028, indicating that the OpenAI deal is projected to provide at least “tens of billions of dollars of revenue.”

“I think they can get to 15% to 20% market share in a $500 billion market, whereas previously they had no chance,” Bloomberg’s Singh estimated. While the OpenAI deal is a significant win for AMD, it also sets the stage for a long-term battle for market dominance with Nvidia, a battle that will likely be subject to intense scrutiny by regulators.

Antitrust regulators have a history of closely monitoring the semiconductor market. In the past, when AMD played second fiddle, it was to Intel. Now, AMD is worth about twice as much as Intel. And, after a spate of dealmaking, Intel’s largest shareholder is the U.S. government, followed not far behind by Nvidia.