Oracle, SoftBank, and OpenAI Launch $500 Billion AI Infrastructure Initiative
A consortium comprising Oracle, SoftBank, and OpenAI has committed to invest $500 billion in U.S. artificial intelligence (AI) infrastructure. This partnership, called Stargate, was recently updated on its progress, revealing that Nvidia (NASDAQ: NVDA) is developing a new data center for OpenAI.
Collaboration Between Nvidia and OpenAI
OpenAI emerged as a key player in AI after receiving significant funding from Microsoft. While ChatGPT integrates into Microsoft’s offerings, both companies are exploring additional partnerships. OpenAI’s strategy necessitates collaborations like Stargate to meet increasing demand for computing resources.
Due to rising interest in ChatGPT, OpenAI requires substantial computing power. Microsoft cannot solely finance these endeavors. Reports indicate that Oracle intends to acquire approximately 400,000 graphics processing units (GPUs) from Nvidia for OpenAI’s new Texas data center, potentially costing up to $40 billion. Oracle will lease these GPUs to OpenAI, enhancing Oracle’s infrastructure-as-a-service (IaaS) business segment.
Significance of the Partnership
This partnership has crucial implications for Nvidia. A recent report from global consultancy firm McKinsey & Company estimates that $7 trillion will be spent on AI infrastructure over the next five years. Nvidia, as a hardware provider, stands to gain significantly from this investment trend.
Although Stargate is in its early stages, Nvidia could secure additional contracts if OpenAI expands its data center operations beyond Texas. Furthermore, reports suggest that OpenAI is collaborating with Taiwan Semiconductor Manufacturing to create custom chipsets, yet Nvidia’s GPUs are vital to OpenAI’s current computing capabilities. This indicates sustained demand for Nvidia’s Blackwell architecture.
Considerations for Nvidia Stock Investment
Nvidia has recently faced a slowdown in stock activity for the first time in three years. Concerns over potential tariff policies affecting business in China have impacted investor sentiment. Currently, Nvidia’s forward price-to-earnings (P/E) ratio stands at 32.6, indicating some valuation compression in a typically high-growth sector.
The collaboration with OpenAI highlights Nvidia’s importance in upcoming AI infrastructure projects. Investors with a long-term perspective may consider acquiring Nvidia shares, especially if the company continues to secure partnerships with major AI developers.
Final Thoughts for Potential Investors
Before investing in Nvidia, it is essential to consider the landscape. Notably, others have identified different stocks as top investment opportunities recently. Long-term growth potential remains strong for Nvidia, particularly as it capitalizes on expanding AI infrastructure needs.
Adam Spatacco holds positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
