Nvidia Corporation‘s (NASDAQ: NVDA) recent investment in OpenAI has sparked investor concerns that the startup might buy Nvidia chips, creating a “circular” investment loop and raising questions about the move's rationale and potential impact on Nvidia's stock.
Nvidia's OpenAI Deal Sparks Circular Sales Concerns
Stacy Rasgon, an analyst at Bernstein, acknowledged that the OpenAI deal “will clearly fuel ‘circular’ concerns.” These concerns revolve around Nvidia investing in startups that subsequently purchase Nvidia chips, or reselling cloud services built on GPUs sold specifically for that purpose, reported MarketWatch.
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The OpenAI deal has raised concerns, though Nvidia clarified that the investment funds won't be used to buy its own products. The Sam Altman-led company made a major cloud deal with Oracle (NYSE: ORCL), potentially boosting Oracle's Nvidia chip purchases, while Nvidia has also invested in OpenAI.
Bank of America analysts, led by Vivek Arya, project that Nvidia's investment in OpenAI could yield 3–5× returns, potentially generating $300–$500 billion in revenue, but they caution that the size of the investment in a single customer may raise perception concerns, “until [Nvidia] clarifies the appropriate accounting treatment.”
Rasgon believes current demand looks strong, and the news is likely positive for Nvidia—for now. “..incremental worries around sustainability don’t seem to present any imminent threat for now,” he said.
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Analysts Confident About Nvidia-OpenAI
Nvidia’s plan to invest up to $100 billion in OpenAI could generate billions in long-term revenue, reinforcing its dominance in the booming artificial intelligence market. This partnership cements Nvidia as OpenAI’s preferred compute and networking partner.
Evercore’s Mark Lipacis raised his price target to $225 from $214, believing Wall Street is underestimating the company. He sees its OpenAI deal as a confidence booster and thinks investing is worthwhile despite concerns of a potential bubble in cloud providers, given the stock trades below its nine-year median forward P/E of 36, as per MarketWatch.
The company’s strategy of funding AI data centers stacked with millions of Nvidia GPUs ensures its chips remain the backbone of the AI boom. This move, which some see as a masterstroke in demand engineering, has been applauded by Wall Street. Nvidia has previously written smaller checks to AI cloud firms like CoreWeave and Lambda, helping them scale capacity while ensuring those servers were powered by its silicon.
According to Benzinga Edge Stock Rankings, Nvidia has a growth score of 97.90% and a momentum rating of 87.29%. Click here to see how it compares to other leading tech companies.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
