OpenAI Just Gave Spectacular News to Nvidia Stock Investors

Nvidia (NVDA +2.09%) is the clear leader in purpose-built accelerator chips for training and operating AI models in data centers. However, the company depends on a relatively small pool of deep-pocketed hyperscalers to buy those AI chips, with just a few companies investing tens of billions of dollars. OpenAI, the developer behind ChatGPT and Sora, is one of those companies.

OpenAI is one of the fastest-growing companies in history. It recently announced some spectacular news that bodes well for Nvidia’s business moving forward.

I’ll review the latest developments below and highlight what they could mean for Nvidia’s stock. You don’t want to miss this.

OpenAI’s ambitions just raised the company’s ceiling in a big way

CEO Sam Altman has helped lead the artificial intelligence (AI) boom with his aggressive leadership at OpenAI.

OpenAI’s flagship product, ChatGPT, went viral in early 2023, kicking off a surge in data center investments as OpenAI and other companies race to build the immense computing capacity needed not only to develop more advanced AI models but also to handle the workloads associated with millions of simultaneous users.

The company has partnered with Microsoft since 2019, but the two parties have butted heads over the years as OpenAI continues to command more chips and money to fund its rapid growth. Recently, the two companies announced a restructured partnership that gives OpenAI greater flexibility to secure the resources it needs and paves the way for a potential IPO.

OpenAI going public would likely be one of the most significant market events in history. The company’s new deal with Microsoft values it at approximately $500 billion, and some experts speculate that an IPO would raise over $60 billion at a $1 trillion valuation.

An IPO could pave the way for Sam Altman’s GPU goals

These events would unlock an avalanche of capital that OpenAI could use to lean further into its growth ambitions. CEO Sam Altman has publicly discussed OpenAI’s chip needs, posting on social media platform X in July that the company must figure out how to grow its GPU count from 1 million to 100 million.

Even if that’s not a literal figure, it’s clear that Sam Altman and OpenAI plan to continue acquiring GPUs for their AI efforts. The company has clear goals to achieve artificial general intelligence (AGI), AI on par with human logic and reasoning. It’s the Holy Grail of AI science.

Can Nvidia build on its $5 trillion market value?

Industry experts estimate Nvidia’s market share at up to 92%. Personally, I’m somewhat skeptical that Nvidia will always control such a high portion of the AI chip market. Competition is coming from both other chip companies and Nvidia’s own customers, who are developing custom in-house chips.

That said, this metaphorical arms race across the AI space doesn’t seem to be slowing. There is likely enough chip demand that Nvidia can continue growing, even if its market share drops somewhat.

Nvidia recently made headlines as the first company to hit a $5 trillion market capitalization. It’s a jaw-dropping feat, making it larger than the entire GDP of some countries. But Nvidia continues to deliver increasingly impressive revenue and profits to back it up.

Despite its hefty market cap, Nvidia still trades at a reasonable forward P/E ratio, just 45 times full-year earnings estimates. Wall Street analysts currently anticipate Nvidia’s earnings growing by an average of almost 33% annually over the next three to five years. That is plenty of growth to justify owning the stock at these levels.

Admittedly, there’s the risk that the AI boom unwinds. Meta Platforms, one of Nvidia’s customers, recently saw its stock tumble amid investor pushback on the company’s aggressive AI spending plans. That said, it’s become clear that many see AI as the next frontier and the power that comes with controlling that space.

OpenAI’s bold plans and new structure give it the green light to shoot for the stars, which would likely boost Nvidia as those AI chip orders continue to pour in.