OpenAI and AMD Reshape the Chip Industry

0:01AMD has just made a deal to supply 6Gigawatts of compute to OpenAI. Now this is a chip deal worth billions of dollars but I think it's fascinating for a lot of reasons because basically I think the strategy that OpenAI and AMD have employed here to make this deal is going to be the strategy OpenAI uses to fund their insane amount of, basically this insane amount of money that they're going to need to build the compute necessary for the next generation of OpenAI, what they're planning on doing with robotics, what they're planning on doing with scaling up AI to do. There's just insane projects that need so much money and most people are of questioning where does all this money come from, this is going to be the strategy that we cover in the show today that they're doing with AMD to roll this out.

0:46And this is different, this deal right now, this AMD deal is different than what they've done with NVIDIA. So this is quite, quite fascinating. We're going to get into all of it. Before we do, I wanted to say, if you want to use this specific, if you want to use an AI platform to get access to all of the top models without having to pay subscriptions to them all, I'd love for you to try AIbox.ai. We have over 40 models, image, text, audio, all in one platform, 11 labs for audio. If you're paying for multiple subscriptions, I would recommend checking this out. And we just launched something called the AI Box Builder, which lets you describe a tool that you want to build.

1:20And the AI Box Builder will chain together multiple AI models. It will put all the prompts in and it will build tools that can automate a lot of what you do with AI in one click. So it's super cool. If you want to go check it out, it's$20 a month, AIbox.ai. All right. Let's talk about AMD. So this is a multi-year chip supply deal that's going to be happening. It could generate tens of billions of dollars in revenue for AMD. And before we get into even what happened here, I just want to tell you what happened to the AMD stock after this announcement. Today, the AMD stock is up 29.9%, basically 30 % today, which is, or 26%, 25 % today, I guess.

2:03It's 20, 30 % in the last day. It's moving around as we're talking. It looks like it's slowly slipping. But basically, you get the idea. 25 % in one day is insane for this company. And it feels like it is officially... Oh, and by the way, at the same time, NVIDIA is down 1%. So it feels like AMD is about to see a big rise because they're going to be making this partnership. So here's what's going on. AMD is going to supply 6 gigawatts of compute to OpenAI. That's enough to power 4.5 million homes. They're doing this across a bunch of different generations of their Instinct GPUs. So they're starting with their MI450 GPU.

2:43And OpenAI is going to get their first gigawatt of capacity in the second half of next year, 2026. So that's when the new chip is scheduled for deployment. So it appears AMD has seen what NVIDIA is doing, doesn't want to miss out on the gravy train, has been working hard to compete here. and AMD claims that this new chip is going to outperform NVIDIA's comparable offering. So NVIDIA has the NVIDIA Rubin CPX and they claim that it is going to basically outperform them and they're doing this through hardware and software improvements. Many of those are going to be made with OpenAI's input. So this is kind of starting to remind me of the deal that OpenAI made with Microsoft when OpenAI first came with ChatGPT and Microsoft Azure and Microsoft put in$10 billion and OpenAI worked very closely with Azure to help explain the exact needs of the chips and the GPUs in order to make something that could train AI models really well.

3:38It seems like AMD is almost getting, like this is a big benefit to AMD because if they work with OpenAI to create the exact GPU's OpenAI needs, every other AI company is going to use that, is going to need that, and they're helping their supplier buy more from them, so it makes a lot of sense. this is I think interesting because part of this agreement is that OpenAI is going to get the option to buy 160 million shares of AMD stock which is about 10 % of the company this is you know a publicly traded company OpenAI is getting the option to buy 10 % of this company and the first tranche of that is going to invest after the first gigawatt so it's going to be six gigawatt total but the first gigawatt is deployed then they're going to get the first tranche of that And then they'll have a bunch of additional tranches that are going to invest as OpenAI buys up the total 6 gigawatts from them.

4:28Now, OpenAI's stake is going to be directly tied to AMD's stock price. So, like, let's just stop for a second and talk about what's going on here. And they have these, like, stock price milestones. They have the final tranche of vesting as if the stock is when the stock price reaches$600 per share. and context is that on Friday, AMD shares closed at$164. Now they're like, I think over$200. At the beginning of this week, they were at$220, which was up 35 % following the news of the deal. They slipped a little bit down. So then it was down to like 25%. That's what you heard me quote at the beginning of the podcast.

5:06But basically, this announcement boosted the stock 25 today. It's 25%, but it boosted initially 35%. Huge spike in the stock. and to the point where OpenAI is like, yeah, I mean, when your stock gets to 600, we get 10 % of your company, we're gonna do these tranches and OpenAI is like getting equity in this company because they're buying from the company and they know that announcing this deal, this is exactly like what happened with NVIDIA where they made these big like partnership announcements and NVIDIA stock exploded. Now we have AMD stock exploding because they made this partnership and what's interesting is then OpenAI is going straight back and getting equity in the company.

5:44So it's like they make a partnership that boosts it and they get equity and they get compensated for the boost, which gives them more money to spend on more projects. It's like these infinite money loops that OpenAI, it feels like they're playing the stock market game better than anyone else. They're literally like, they're like, we will buy from you. And we want 10 % of your company is upside when your stock price grows because we announced we're buying from you. In the future, before anything's even delivered, the stock price goes up. So this is what AMD said about this. CEO AMD, Dr. Lisa Su said, we are thrilled to partner with OpenAI to deliver AI compute at massive scale.

6:19This partnership brings the best of AMD and OpenAI together to create a true win-win, enabling the world's most ambitious AI build-out and advancing the entire AI ecosystem. Sam Altman said that it was, quote, a major step in building the compute capacity to realize AI's full potential. I feel like he doesn't really say AGI anymore. he's shied away from that term. He's just like, the full potential of AI. Whatever that potential is, this is what we need to get there. Last month alone, NVIDIA agreed to invest up to$100 billion into OpenAI, and they were going to supply them with 10 gigawatts. OpenAI and Briodecom also signed a deal for$10 billion to develop and manufacture custom AI chips.

7:00And OpenAI said that its Stargate initiative with Oracle and SoftBank are going to be expanding. That's according to a quote from TechCrunch. So I think this is interesting. There's a lot of deals going down, including one with OpenAI and Samsung and SK Hynix to get some DRAM memory chips for the Stargate project and build that out in South Korea. So there is a lot going on here. But I think that my big takeaway from this is basically that OpenAI needs more money. They've run out of like a lot of the traditional ways, like VC funding and then even like, you know, investments from Nvidia. Okay, sure.

7:35They just got a hundred billion dollars from Nvidia. Um, but it's like, Hey, like what now? And so it seems like the next strategy is they go make partnerships with chip companies and are like, Hey, before we announced the, the, the partnership, give us a certain amount of equity in your company. When your stock price goes up, we'll announce that your stock price will go up. We'll get a lot of equity. We could sell that equity for more money and then we could buy more chips with it. So it's like they're, they're making money from all sides of the deal. Absolutely fascinating. I think we're going to see a lot more of this in the future.

8:02and I'm not like mad. I mean, I don't think this is necessarily a bad thing, but it's, I mean, fascinating and it's very obvious what's happening and how they're funding this basically to boost these companies, which is just crazy. So you could see that OpenAI will inevitably get an absolutely absurd amount of money deploying this strategy without a doubt. Anyways, thank you so much for tuning into the podcast today. I hope you enjoyed it. If you learned anything new, it would mean the world to me if you could leave a rating and review over on Spotify. I know I ask for this all the time. And by the way, Apple listeners are like 70 % of this show and Spotify listeners have left the exact same amount of reviews as Apple listeners.

8:47So if you are an Apple listener, do me a favor, drop a review on the show if you appreciate it. If you listen, we got to keep up the reviews with the Spotify listeners. There's a lot less of them. They leave more reviews. But I know that to the Apple listeners today, a special call out. If you could leave a review, I'd really appreciate it. All right, thanks so much and make sure to check out AIbox.ai to get access to all of the AI models on one platform and build some incredible AI tools. All right, thanks so much. Catch you guys in the next episode.