OpenAI is creating more than just AI; it is creating a high-stakes corporate empire, from chip partnerships with AMD to strategic investments with Nvidia and Microsoft.
OpenAI’s Expanding Empire: Strategic Partnerships, Power Plays, and Risks
Building an AI Future at Any Cost
OpenAI is constructing data centers without regard for other people. By doing this, Sam Altman's business is also creating a corporate empire founded on strong interdependencies. This expanding web gains a new thread with its recent cooperation with chipmaker AMD.
The ChatGPT developer signed an agreement on Monday that is quite similar to one it had with Nvidia, the top AI chipmaker and AMD's primary rival, last month. Both agreements can be viewed as long-term partnerships: chip producers receive the promise of future profits in exchange for OpenAI's commitment to purchasing large amounts of premium silicon.
The Chip Wars: AMD vs Nvidia
However, there is an additional benefit for OpenAI in both situations. Altman's company will eventually sell shares worth up to $100 billion with Nvidia, generating a substantial sum of money. OpenAI warrants, a financial option that would enable AMD to own up to 10% of the company if it meets specific performance targets, are being offered by AMD in the meanwhile.
With just $1.6 million, OpenAI could acquire a $96 billion interest in AMD if all goes as planned, including AMD's price rising to $600 per share.
AMD’s offer explained
AMD's offer is really considerably more generous than Nvidia's. Given that AMD is presently ranked second in the competition for AI chips, it is easy to understand why. In theory, AMD could sell up to $200 billion worth of chips thanks to OpenAI's plans, which would be enough to cover the company's income for seven years.
The theory is that other businesses will want to purchase AMD's new MI450 chips after witnessing OpenAI's effective use of them. AMD's market value increased by more than $80 billion in the minutes following the announcement of the agreement.
Financial Engineering and Cross-Ownership Tactics
Altman and his team are creating an environment that appears extremely complex when viewed from a distance. For example, Nvidia owns stock in CoreWeave, a data center business that also has OpenAI as a shareholder.
One of OpenAI's original investors, Microsoft, is also heavily involved. Since OpenAI's models are accessible on Google's cloud platform, Altman's organization collaborates with Google as well—not just as a client, but also as a sort of provider. It's a contemporary take on a classic business strategy.
Historical parallels in global business
For instance, cross-shareholding has long been used by Japanese businesses to connect suppliers and customers; however, in recent years, some of these relationships have been severing in order to free up funds. Think of Deutsche Bank's previous ownership of the automaker Daimler as an example of how German financial institutions used to act similarly.
A significant stake in Bloomberg LP was previously owned by Merrill Lynch, which is now a part of Bank of America. Although this method isn't particularly conventional, it's also not necessarily flawed.
Aligning interests—or concentrating risk
The phrase "shareholding helps align strategic interests" may be overdone in business parlance, yet there is some validity to the notion that suppliers and customers should work together rather than clash.
Automobile manufacturer Chrysler attempted to emulate Japan's keiretsu model in the 1990s, emphasizing collaboration with suppliers rather than pressure. For a while, it was the most profitable big automaker in America, while not implementing cross-shareholding.
Altman’s High-Risk, High-Reward Vision
However, there are risks associated with so-called win-win agreements. Shared victories can swiftly become shared losses when things go wrong. Businesses have more riding on OpenAI's continuous success—in terms of earnings and stock prices—the more they rely on its expansion and focus their own operations on catering to their most valuable client. Because of this, Altman's empire-building appears to be quite strategic: making sure OpenAI succeeds is beginning to become a matter of concern for everyone.
Official Links: AMD, Nvidia, Microsoft, OpenAI
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