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Nvidia: Firm Shares Big AI Dreams with OpenAI, Announce a Strategic Partnership

The letter of intent is one of several we like to see to support bullish industrywide growth expectations for AI.

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NVIDIA Corp
(NVDA)

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Nvidia NVDA and OpenAI announced a letter of intent for a strategic partnership to deploy at least 10 gigawatts of Nvidia systems for OpenAI’s artificial intelligence infrastructure. Nvidia intends to invest up to $100 billion in OpenAI “as new Nvidia systems are deployed.”

Why it matters: We think this partnership fits within the framework of the $500 billion Stargate project, announced in January. OpenAI and its Stargate partners have tremendous aspirations for AI, and Nvidia is cementing its role in these buildouts.

  • The deal also likely squashes any concern that OpenAI’s new custom chip (developed with Broadcom) will materially dent Nvidia’s AI market share within these data centers.

The bottom line: We maintain our $190 fair value estimate and Very High Uncertainty Rating for wide-moat Nvidia. Shares rose about 4% on the news Sept. 22 and appear fairly valued.

  • Our valuation is based on tremendous AI adoption, and the letter of intent is one of several we like to see to support these bullish industrywide growth expectations.
  • The timing of buildouts was not disclosed. We’re cautiously optimistic that any expansion will be conducted at a measured and reasonable pace. Nvidia’s gear have short shelf lives, perhaps naturally squashing any temptation for massive buildouts years in advance of anticipated demand.

Coming up: We hope to hear more about Nvidia’s future investments in OpenAI. Nvidia certainly has excess cash to invest in OpenAI in this manner.

  • For now, we’ll consider any investments to be arm’s-length transactions. However, these investments might be circular and raise related party concerns, as Nvidia may own shares in a customer that will likely use such funds to buy more Nvidia gear.
  • Further, and in general, we foresee four risks that may mute the industry’s AI aspiration: supply chain expansion, financing availability, energy/power requirements, and geopolitical restrictions. All this may affect the pace of this deal’s buildouts over time.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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