OpenAI strikes $1 trillion in AI chip deals despite mounting losses

OpenAI has committed to roughly $1 trillion in deals this year to secure the computing power needed to run its AI models, including ChatGPT — a staggering sum that far exceeds its current revenues and raises serious questions about how the company will fund its ambitious plans.

On October 6, OpenAI announced a partnership with chipmaker AMD, adding to earlier deals with Nvidia, Oracle, and CoreWeave. The agreements are aimed at giving OpenAI access to over 20 gigawatts of computing capacity, the equivalent of 20 nuclear reactors — over the next decade, The Financial Times reports. 

Each gigawatt of AI computing power is estimated to cost about $50 billion to deploy, according to OpenAI executives.

“OpenAI is in no position to make any of these commitments,” said Gil Luria, an analyst at DA Davidson, noting the company could lose up to $10 billion this year. “Part of Silicon Valley’s ‘fake it until you make it’ ethos is to get people to have skin in the game. Now a lot of big companies have a lot of skin in the game on OpenAI.”

OpenAI has yet to generate the capital required to support its infrastructure, chip purchases, and workforce. Many of the deals involve complex financing structures and circular relationships with partners — including incentives and equity-based agreements.

Nvidia and AMD’s deals could be worth $500 billion and $300 billion respectively. Oracle’s commitment may cost another $300 billion, and CoreWeave has disclosed $22 billion in computing agreements with OpenAI. A separate initiative, Stargate — launched with SoftBank, Oracle, and others — aims to invest up to $500 billion in U.S. AI infrastructure, though how these new deals fit in remains unclear.

The agreements also come with financial boosts for OpenAI’s partners. Oracle’s market cap rose $244 billion following its announcement; AMD shares jumped 24% Monday, increasing its valuation by $63 billion.

Nvidia, which surpassed $4 trillion in market cap, plans to invest $100 billion into OpenAI over the next decade. AMD is offering OpenAI warrants to buy up to 10% of its stock for a cent per share if project targets, including share price goals, are met.

“It’s a pretty innovative structure, which didn’t come lightly,” said AMD CEO Lisa Su on October 6.

Meanwhile, OpenAI has raised about $47 billion in venture capital over the past year and secured $4 billion in bank debt. The company is also preparing to raise tens of billions more in debt to fund its growth, people close to the matter said. However, much of the capital is contingent on negotiations with Microsoft, OpenAI’s largest investor.

Moody’s has raised concerns over OpenAI’s credit risk, particularly its impact on Oracle’s future data center revenues. Nvidia’s support is expected to reassure lenders.

Still, critics remain skeptical.

“The company is in a far more capital-intensive business than Google or Microsoft ever was, and was born with no cost discipline,” said one longtime Silicon Valley investor. He added that Amazon’s Jeff Bezos and Oracle’s Larry Ellison “only found religion” and slashed spending “after nearly going bankrupt.”

OpenAI expects to grow its $12 billion in annual revenue by expanding its product offerings and doubling paid subscribers to ChatGPT. However, if AI demand fails to grow as expected, the trillion-dollar gamble could backfire — and hard.

By Sabina Mammadli