Amazon Fuels OpenAI with $10B

0:00Amazon is reportedly in talks with OpenAI to invest 10 billion dollars into the startup. these are these kind of circular deals that we see being very popular today where essentially amazon will invest 10 billion dollars into open ai with kind of the understanding that open ai is going to turn around and spend those 10 billion dollars on aws for compute this is good for both companies because open ai gets you know 100 or gets you know the 10 billion dollar investment which is amazing for them and open and amazon gets a chunk of the company plus they get to mark up, you know,$10 billion in revenue to AWS when that money gets spent back.

0:35So it's kind of the money goes both ways. And with companies that are, you know, really heavily reliant on investors and the stock market, it's great for Amazon's stock price to say, look, we got another$10 billion. And it's great for OpenAI to say, look, someone invested another$10 billion into our company. It's interesting that the people investing money, though, are chip makers, and you know, anyone making hardware that OpenAI needs to buy or data centers, people like Oracle. And then of course, we have companies like Amazon with AWS and all of their web servers. So this is an interesting deal that seems to be more and more popular.

1:07We're going to break down the deal, who broke it and what the sources are saying about all of this. Before we get into it, I wanted to mention if you want to build an AI tool or an app using AI, I'd love for you to try out my startup, which is called AIbox.ai. We've launched a no code AI app or tool workflow builder. Essentially, you can go and describe a type of tool that you'd like to create. And our workflow builder will go ahead link different models together and build it for you. You could create a daily AI news brief tool, you could create something like a podcast episode kit tool that compiles publishing assets.

1:42There's all sorts of really cool ideas that you can create over there. Go check out AI box.ai. I'll leave a link in the description if you want to try out our new AI app workflow builder. All right, let's get into the story right now. So this was reported by CNBC and Bloomberg who are both discussing this. The investment in OpenAI, this$10 billion investment from Amazon would give it a valuation of$500 billion, almost half a trillion dollars as a private company. This is absolutely phenomenal. And this is according to some quote unquote, anonymous sources who were familiar with the matter. The information first broke news about this talk and then Bloomberg dug in and got some interesting info on that final valuation.

2:23Right now, I think this potential deal shows that Amazon's really trying to broaden its exposure to AI and to the AI race. They've invested heavily into Anthropik and now it seems like they're going straight for OpenAI. And they've also already committed about$8 billion to Anthropik. So, you know, putting$10 billion into OpenAI, I'm not sure what Anthropik thinks about this because, you know, there are$8 billion that was kind of tranched out over many years. And then OpenAI is about to get a big, huge slab of$10 billion. But maybe Anthropics got a tranch of money earmarked for it as well. Because, of course, these two are direct competitors.

2:57And earlier this month, Amazon also introduced the latest version of their Tranium AI chips. And they also previewed the next generation, which I think is, you know, really making the point that Amazon and AWS is really focusing on their cloud ecosystem. and they really want to be the place where AI companies train their models. It's interesting too because when we say AI companies, like a lot of people are like, well, you know, they're investing heavily in Anthropik and OpenAI because they want to show everyone else that look, if we put all of this, you know, if the big companies like Anthropik and OpenAI are training on our, you know, with our Tranium AI chips and they're training on AWS and they're using like our infrastructure, then everyone else is going to want to come over.

3:34What I think is also interesting to note here is there's only five or six players in this race that are these gigantic companies. And Google's going to use all of their own stuff. Microsoft is going to use all of their own stuff. You have OpenAI and Anthropocore, obviously the far out and ahead, it seems like Grok and XAI are kind of trying to do their own stuff. So it's interesting because I think that argument is less of an argument for why they'll make these big deals. I don't think it's so much just so that everyone else wanting to train AI models will choose them because OpenAI and Anthropocore are such a massive part of the market.

4:07like sure what they want to like scoop up the other 40 % of the market that isn't anthropic and open AI and Google and meta and and and xai so like I just think I don't know if that's the exact reason I think they really truly do want a piece of open AI they want the circular deal where they were getting more money back into their ecosystem and it's going to boost their stock price this is just a couple months after opening I completed its transition to a for profit company. This is something that gives them a lot more flexibility to do capital raises that Microsoft doesn't have to approve of.

4:41I think this is one of the earliest backers and holders, they have a 27 % stake, Microsoft is a 27 % stake in opening eye to date. So this Amazon investment would be pretty big. And it's also something that might only be possible now that they're a private company or a for profit company, sorry. Because now that Microsoft doesn't have kind of this controlling edge in the past, Microsoft was because the Microsoft's original deal where they gave them$10 billion way back in the day that kicked off this whole AI boom was, you know, they're buying a huge chunk of the company. And they said, we have to approve all future investments and where you're putting your money when it comes to compute and all of that kind of stuff.

5:17Because Microsoft wanted to sort of be their exclusive with Microsoft Azure. Now, as it turns out, there wasn't enough compute, and they needed a lot more resources, they needed to spread things out and to, you know, put all their eggs in one basket with Microsoft. So they've kind of broken away from that. And now they're able to, you know, we see them training with a lot of different platforms, AWS being one of those. And Amazon investment right now, I think is, you know, probably the latest example of this circular deal that we're seeing in the AI sector. Essentially, in all of these arrangements, the huge cloud and hardware providers, they back the latest AI firms.

5:53And then those startups essentially commit to using their investors data centers and chips to train their models so this is what i think is going to be standard in this deal although we don't have those specific details you can imagine this is why it's happening back in march open ai invested 350 million dollars into core weave they use the capital to purchase nvidia chips that are now you know helping to power opening eyes workload that of course boosted core reeves revenue right by 350 million and in turn the value of open ai stake also increased because they were invested in the company. And then in October, OpenAI agreed to acquire a 10 % stake in AMD and they committed to using its AI GPUs.

6:31But they also signed a chip agreement with Broadcom. Then a month later, OpenAI announced a$38 billion cloud compute deal with Amazon. And would you know it, all of a sudden, Amazon is now doing a$10 billion investment into OpenAI. So all of these companies are just cycling money back and forth. The revenue from one goes straight back to the other. Amazon and OpenAI were not responding to any sort of requests about this story. But I think we have some pretty good insights in insiders on it. And of course, we have the$38 billion cloud compute deal that OpenAI, you know, officially signed with Amazon.

7:10So we know that Amazon put kicking money back to OpenAI would not be shocking. Now, one thing that I will mention is in that$38 billion cloud compute deal that Amazon and OpenAI signed, that was a multi year deal. So that rolls out over, I believe, six years. And so you can imagine$38 billion going to Amazon over six years. But the nice thing about that is as soon as that deal is essentially announced, like investors are starting to price that into the market, where their Amazon stock is immediately getting a lot of the benefit of having essentially$40 billion cloud compute deal. Everyone knows that it's coming in and we sort of like predict where the stock is going to go based off of that.

7:48So the Amazon stock goes up. And what happens when the Amazon stock goes up? Well, it makes it easier for them to finance other things like for say, giving OpenAI a$10 billion investment, which of course, is going to give them a share of the company. And as the company gets more valuable, it's going to on paper anyways, make Amazon look more valuable. So this is really a win-win all around for a lot of these different companies and it's not going to shock me to see these continue. Now what is the risks associated with this? Well that is of course the bubble risk. If every company is signing these multi-year multi-billion dollar deals with all of this circular money going around, if any of the dominoes for any reason, and I'm not saying there is a reason for them to fall, but if any of the dominoes fall, everything could come crashing down.

8:30If for some reason Amazon's revenue absolutely tanked and they were unable or open AI, let's say their revenue absolutely tanked because Gemini beat them out, well maybe they wouldn't be able to pay for that$38 billion. They would have to cancel or have other issues or they wouldn't need all of the compute that they spent on their$500 billion deal with Oracle to build hardware and data centers. So there's a lot of risks associated if they overbuild and the demand goes down or something financially bad happens to any of the companies involved. It's going to make it really hard for everyone else who has so much equity and money tied up in everything else.

9:04So hopefully we continue to see some amazing AI improvements in the industry and we get a lot of incredible tools from a consumer perspective. This is the goal and that this AI bubble doesn't pop and ruin us all. All right. Thanks so much for tuning into the podcast. If you enjoyed this episode, make sure you go check out AIbox.ai. If you want to build anything that you are imagining for your business, automate different tools using AI, go check it out. AIbox.ai. I'll leave a link in the description.