On Monday, the shares of chipmaker AMD surged after the company announced that it had secured a deal to supply ChatGPT maker OpenAI with chips over several years. This deal also gives OpenAI an option to secure a 10% equity stake in the American chipmaker.
Under the deal, AMD would generate billions of dollars each year, and the announcement triggered AMD stock to climb 34% in a single day, their biggest surge in one day and put the company on track for its steepest single-day climb in nearly a decade. As a result of that surge, the market cap of AMD gained approximately $80 billion.
This deal highlights the huge appetite of AI companies to lock in computing power to enable them to compete for supremacy in the race to dominate the development of superhuman-level artificial intelligence.
The announcement comes at a time when AMD has secured several commitments from companies to invest in the chipmaker that is working to establish its relevance in the AI industry as a leader. Forrest Norrod, an executive VP at AMD, hailed the deal as transformative for the firm and it underscores the relevance of AMD in the AI industry.
The OpenAI deal comes at a time when Nvidia, a chipmaking rival to AMD, had revealed that it was substantially investing in OpenAI. It is therefore significant that OpenAI opted to enter a chip supply deal with AMD and not Nvidia that had earlier on committed to inject capital into the operations of OpenAI.
Currently, Nvidia dominates the AI chips race and the firm has a backlog of product orders to deliver. AMD is working to grab significant market share from the reigning global leader.
Executives at AMD see this OpenAI deal as a source of revenue worth billions of dollars and the ripple effect could generate the company approximately $100 billion in additional revenue from not only OpenAI but also other companies in the course of four years. The deal is therefore a major validation of the technology of AMD in the AI chips market.
To paint a vivid picture of how far ahead Nvidia is from AMD, one needs to look at the projected revenue of the two firms for this fiscal year. AMD expects revenues worth $32.8 billion this year while Nvidia is anticipating total revenue to hit $206.3 billion. That is a huge gap between the firms, but AMD is determined to close the gap.
Other chipmakers like Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSM) are also way ahead of AMD, but the fortunes of these tech leaders are constantly in flux and it is foolhardy to firmly bet against any one of these entities as the AI race intensifies.
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