Why Nvidia Is Now Rooting for AMD

The Wall Street Journal recently broke the story of a landmark deal between Advanced Micro Devices (AMD) and OpenAI, outlining a multi-gigawatt AI chip supply agreement that comes with a striking financial twist. Over the next several years, OpenAI is set to deploy up to 6 gigawatts of AMD GPUs, a massive infrastructure buildout with major revenue implications for AMD. In exchange, OpenAI gains the right to buy up to 160 million shares of AMD stock at a nominal price, potentially securing a 10% equity stake if AMD’s share price reaches $600, implying a staggering approximately $1 trillion market capitalisation for AMD.

This is no ordinary supplier contract. It’s a bold wager on both the ascendance of AMD in the AI chip race and the scale of AI compute demand itself. The deal’s structure aligns OpenAI’s valuation directly with AMD’s market performance and is designed to benefit both firms profoundly if the AI boom continues unabated.

From my perspective, this deal radically reshapes the economics, incentives, and competitive dynamics of AI chips. It’s effectively a massive cross-ownership and value creation pact between software and hardware, where both parties stand to gain tremendously if AMD reaches that $600 target.

Here’s why this matters:

At today’s AMD valuation of about $340 billion (roughly $210 per share), OpenAI’s 10% stake could jump in value from a mere $1.6 million exercise price to about $100 billion if AMD hits $600 per share, a more than 60,000x implied return on that warrant investment. That alone makes this an extraordinary financial deal.

The feedback loop here is astonishing. OpenAI’s massive hardware commitment acts as a rocket engine to AMD’s revenues, pushing the narrative and stock price higher, making the warrants more valuable. As OpenAI edges closer to a public listing, the market has a strong incentive to bid up AMD’s shares toward the $600 milestone. Market participants with stakes in the AI ecosystem - venture funds, institutional investors, retail traders - all have aligned motives to push AMD’s price higher to maximise returns from OpenAI’s holdings.

But there’s a curious circularity. Nvidia, which has pledged up to $100 billion to OpenAI and supplies it with chips, could see its investment indirectly benefit from OpenAI’s potential stake in AMD, a competitor. This tangled web of investments means Nvidia’s own valuation will be partially influenced by OpenAI’s fate, which itself depends on AMD.

However, I ask: Is the sky truly the limit here? The deal hinges on extreme buildout assumptions. OpenAI’s combined 16-gigawatt demand (23GW taking into account deals with Oracle and Softbank) with Nvidia and AMD chips dwarfs almost anything the industry has seen. There are real risks that the infrastructure may be overbuilt, or that competitors like Google’s DeepMind, whose AI models are already highly competitive, could outpace OpenAI technologically or, more importantly, commercially. If AI compute demand saturates, or the market shifts toward efficiency over brute force, the $600 AMD share price and the corresponding OpenAI windfall could prove elusive.

Moreover, this arrangement could pressure Nvidia’s moat by introducing meaningful price competition and margin compression. AMD is effectively incentivising OpenAI to adopt its chips with up to 10% equity upside at a very cheap cost, a move that threatens Nvidia’s dominance and margin structure in AI chips.

In sum, this AMD-OpenAI deal marks a fundamental innovation in how AI infrastructure is financed, valued, and intertwined. This isn't just a chip supply contract. It's a financial instrument designed to pump up valuations, supercharge the story, and pull in staggering amounts of capital.

The AMD Investment Logic: Narrative, Momentum, and Real Risks

From an investment standpoint, the AMD-OpenAI deal is the an asymmetric opportunity in today’s market cycle. If AMD’s share price reaches the $600 threshold required for OpenAI’s full 10% stake, we’re looking at a 186% rally from present levels, a move that, all else equal, the entire market machinery is now subtly incentivised to support. Why? Because the collective value of that $100 billion equity windfall for OpenAI, achieved at a mere $1.6 million outlay, is simply too powerful a carrot for major investors with OpenAI exposure to ignore. In other words, as long as the OpenAI hype endures and the infrastructure demand narrative holds, the market may “force” the the share price there, not solely due to fundamentals, but also due to incentives among institutional players eying an eventual OpenAI IPO.

Yet with such engineered upside comes real risk. Execution remains paramount: If OpenAI doesn’t hit chip deployment rates, the warrants may not fully vest. The speculative momentum could quickly fade if new AI models from competitors like Google or Meta shift focus to efficiency, lessening the need for AMD’s brute-force hardware scaling. And like all market structures predicated on narrative and cross-ownership incentives, a shift in sentiment could turn today’s positive feedback loop into a vicious cycle in the opposite direction.

As investors and observers, we must ask: Is this a durable step forward for AI growth, or the latest chapter in what might become an AI investment bubble? The numbers are compelling, the incentives are uniquely aligned, but the timeline and ultimate execution remain the biggest unknowns. This deal is a vivid case study in how intertwined corporate fortunes and market psychology have become in the most cutting-edge sectors today, and a reminder that in tech investing, the story can sometimes drive value as much as the actual business.