How Nvidia is backstopping America’s AI boom

Nvidia’s move to invest $100 billion into Open AI to help finance a historic data center build-out has helped reset market expectations about the startup’s shaky finances.

- Robbie Whelan & Bradley Olson

It's a familiar play by the chip giant.

Chief Executive Jensen Huang has repeatedly sought to leverage the enormous confidence investors have in Nvidia's future to help strengthen the company's supply chain partners. It has used its balance sheet clout to keep the AI boom humming through deals, partnerships and investments in companies that are among its top customers, including cloud-computing provider Core Weave, rival chip designer Intel and XAI.

The deals highlight an issue that some investors are calling "circularity" in Nvidia's prospects, whereby the company takes steps to boost or shore up demand for its AI chips by supporting startups and other companies. Those companies can then use those funds or new liquidity to buy Nvidia chips. For every $10 billion Nvidia invests in OpenAI, the startup will spend $35 billion on Nvidia chips, according to an analysis from NewStreet Research. That arrangement reduces Nvidia's typical margins for cutting-edge chips, but ensures continued demand and offers a lifeline to cash-strapped AI companies. It effectively amounts to a discount for OpenAI.

NewStreet analysts said they expect Nvidia to offer similar deals to XAI and other "cash-constrained" players.