Nvidia-OpenAI $100bn Deal Collapse Sends Shockwaves Through AI Sector
The apparent disappearance of a much-discussed $100bn arrangement between chipmaking giant Nvidia and artificial intelligence developer OpenAI has sent ripples through the technology investment landscape, raising serious questions about the sustainability of AI's rapid expansion.
Circular Funding Arrangement Unravels
Last September, reports emerged of a groundbreaking $100bn deal between Nvidia and OpenAI that would see the chipmaker provide substantial funding to the ChatGPT developer, with much of that money destined to return to Nvidia through purchases of its own advanced AI processors. This circular arrangement, which some market observers compared to the dotcom bubble of 1999-2000, now appears to have evaporated.
According to the Wall Street Journal, negotiations between the two companies had not progressed significantly, with Nvidia's chief executive Jensen Huang privately emphasising that the arrangement was "non-binding" and "not finalised". Huang appeared to confirm this stance during recent remarks in Taipei, telling reporters that while Nvidia would make a "huge" investment in OpenAI's next funding round, it would be "nothing like" the previously reported $100bn figure.
Mutual Dissatisfaction Emerges
Further reports suggest the cooling of relations may be mutual. Reuters indicated that OpenAI had grown "unsatisfied" with Nvidia's advanced AI chips and was actively seeking alternatives. The news has already impacted Nvidia's market position, with the company's stock experiencing a 10% decline this week and both organisations moving swiftly into damage control mode.
OpenAI's CEO Sam Altman took to social media platform X to state: "We love working with Nvidia and they make the best AI chips in the world. We hope to be a gigantic customer for a very long time." Meanwhile, Oracle – which is banking on a separate $300bn cloud computing arrangement with OpenAI – publicly affirmed its continued confidence in the startup's ability to meet its financial commitments despite the Nvidia development.
Broader Implications for AI Investment
Alvin Nguyen, an analyst at research firm Forrester, suggests there are solid business reasons behind the apparent shake-up. "OpenAI's ambitious growth trajectory means it will be difficult for the company to stick with a single vendor, especially as it plans new, computationally demanding AI models," he explained. "They need chips. They need as many as possible."
For Nvidia, allowing hype to build around potential deals serves a strategic purpose. "They will not discourage people from overhyping," Nguyen noted. "Why say something and immediately sucker punch your own share price?"
Changing Competitive Landscape
The deal's apparent collapse occurs against a backdrop of significant shifts within the AI sector. OpenAI's flagship product ChatGPT has seen its market share decline from 69% to 45% as competitors including Google's Gemini, xAI's Grok and Anthropic's Claude gain traction. Meanwhile, the company appears to have shifted focus from futuristic discussions about super-intelligence toward more immediately profitable ventures such as advertising and adult content.
Further down the AI ecosystem, reality is beginning to bite. This week witnessed substantial sell-offs in certain software stocks following the launch of new Anthropic AI tools capable of performing professional services, raising concerns about business models vulnerable to AI disruption. The phenomenon of "jagged AI" – where advanced systems excel at some tasks while struggling with others – is beginning to reveal potential losers in service industries where automation threatens traditional roles.
Investor Confidence Tested
The central question emerging from this development concerns who might ultimately bear the financial burden of AI's expansion. With OpenAI committed to compute deals worth more than $1tn and investors growing increasingly cautious about which aspects of AI technology will actually generate sustainable revenue, the sector appears to be transitioning from speculative hype to practical realities.
"I think there will be knock-on effects," warned Nguyen, invoking the famous market adage: "The markets can stay irrational longer than you can stay solvent." As the AI economy matures, the evaporation of a $100bn deal between two of its most prominent players serves as a potent reminder that even the most promising technological revolutions must eventually confront economic fundamentals.
