Lisa Su, CEO of AMD, left, and Jensen Huang, CEO of Nvidia
Benoit Tessier | Ritzau Scanpix | Mads Claus Rasmussen | Reuters
In the 1990s, when Intel dominated the PC chip market, the semiconductor maker needed Advanced Micro Devices to exist as a viable No. 2 to help avoid being charged with monopolistic behavior.
Almost three decades later, AMD may be serving a similar role for Nvidia, which controls over 90% of the market for graphics processing units used for artificial intelligence workloads.
When AMD announced a deal on Monday that involves selling many billions of dollars worth of GPUs to OpenAI, it announced itself as a serious rival the can pick up share in the quickly growing market for AI chips, analysts said.
“Right now, Nvidia almost has a monopoly, with AMD having a low-single-digit share in the $250 billion market” for AI data center silicon, said Mandeep Singh, senior analyst at Bloomberg intelligence.
Up to this point, Nvidia and OpenAI have defined the new era of AI.
Nvidia’s GPU sales have pushed the company’s market cap to $4.5 trillion. OpenAI’s private market valuation has climbed to $500 billion, driven by the popularity of ChatGPT and the company’s hyper-aggressive plans for building out data centers.
Nvidia is a significant investor in OpenAI, and last month agreed to pour up to $100 billion into the AI startup’s infrastructure buildouts.
While AMD is a very distant challenger, the stock has also been a Wall Street darling because of the company’s promises in AI and expectations that its GPUs will be enthusiastically snapped up by customers. But until its announcement with OpenAI this week, AMD’s rally has largely been built on hope.
AMD’s stock soared 24% on Monday, its biggest gain since 2002. It’s up 89% this year compared to Nvidia’s 40% gain.
Nvidia’s control of the burgeoning market has been so vast that in September of last year, during the waning days of the Biden administration, the company was reportedly subpoenaed by the Justice Department, though it denied the report. Sen. Elizabeth Warren, D-Mass., sent a letter to the DOJ’s antitrust unit at the time supporting a probe.
The company’s growth, she wrote, “has been supercharged by Nvidia’s use of anticompetitive tactics that have choked off competition and chilled innovation.” Nvidia said at the time that it wins on merit.
The deal OpenAI and AMD announced on Monday could change the competitive dynamic.
The tie-up is expected to bring “double digit billions” in revenue to AMD starting in the second half of next year. OpenAI could also end up owning 10% of AMD if the stock hits price targets over a period of years.
AMD CEO Lisa Su described the agreement as a “win-win” on a call with reporters, and said it’s proof that her company’s chips are fast enough and priced to compete with those from Nvidia.
She described OpenAI’s commitment as a “clear signal” that AMD’s GPUs and software offer the performance and economic value “required for the most demanding at-scale deployments.”
Nvidia CEO Jensen Huang said on CNBC’s Squawk Box on Wednesday that the OpenAI-AMD deal was “unique and surprising.”
“I’m surprised that they would give away 10% of the company before they even built it,” Huang said.
“It’s clever, I guess,” Huang said.
The pact also allows OpenAI to show that its contracts and investments with suppliers like Nvidia aren’t exclusive, to avoid any potential antitrust ramifications. OpenAI CEO Sam Altman said on social media that any AMD chips would be “incremental” to its Nvidia purchases, and that the “world needs much more compute.”
“None of these things are, as far as I’m aware, exclusive contracts tying up avenues to other competitors,” said Alden Abbott, senior research fellow at Mercatus Center and a former general counsel at the Federal Trade Commission. “I don’t see any argument that in the near term that shows monopolization or cartelization of AI suppliers.”
Representatives from Nvidia, AMD and OpenAI declined to comment.
‘Committed to build’
When it comes to Washington, D.C., regulators aren’t the only concern. Those pressures have seemingly diminished this year under the Trump administration’s DOJ.
Rather, semiconductor investors are worried about potential tariffs, specifically Section 232 tariffs focused on chips. President Donald Trump has said that the tariffs, which have yet to go into effect, will double the price of imported chips. But in August, the president introduced a big carve-out.
“If you’re building in the United States or have committed to build — without question committed to build in the United States —there will be no charge,” Trump said at an event to announce Apple investments. The Trump administration’s AI Action Plan pushes for the U.S. to export “full-stack” AI technology abroad so it can become the global standard.
Ed Mills, Washington policy analyst at Raymond James, said it’s not entirely clear what will qualify for the exemption, adding that OpenAI’s investment in AMD may end up being an “off ramp” for the company.
Nvidia and OpenAI have already played a big role in Trump’s AI ambitions, as they joined with Oracle in January, when the president announced Project Stargate, a plan to invest up to $500 billion in U.S. AI infrastructure.
CEO Dr. Lisa Su, AMD executives, and industry luminaries unveil the AMD vision for Advancing Al.
Courtesy: AMD
In the AMD deal, OpenAI will be using the company’s Instinct MI450 systems, which will start shipping next year. It’s the first time AMD has offered a “rack-scale” system, not just individual chips, and will mean AMD is the only company besides Nvidia offering a full stack of AI hardware technologies.
“By having OpenAI purchase as much as they are from AMD, now we have a a multiplayer race that seems to be kind of dominated by Nvidia,” Mills said. “So we’re expanding the number U.S. companies that are going to be able to compete in producing that U.S. tech stack.”
There’s also the China issue.
Both Nvidia and AMD have China-specific AI products that have been barred by the U.S. government for shipment to the world’s second-largest economy, which is a major center of AI research. The Trump administration reversed course over the summer, and said the companies could export chips if they paid the U.S. government 15% of the revenue, but they still need export licenses.
Trump is expected to meet with China’s president, Xi Jinping, at the Asia-Pacific Economic Cooperation forum later this month. Recent reports suggest China could commit to investing $1 trillion in the U.S., and Mills said high-priced AI chips could be part of the deal.
AMD has historically downplayed competition with Nvidia, instead pointing to the potential opportunity in AI. The company recently said the AI chip market could be worth $500 billion by 2028, and this week said the OpenAI deal equates to at least “tens of billions of dollars of revenue.”
“I think they can get to 15% to 20% market share in a $500 billion market, whereas previously they had no chance,” said Bloomberg’s Singh.
The Trump administration may not be so concerned about antitrust matters, but Nvidia and AMD are at the early stages of a battle that’s expected to play out over many years, and there’s no telling who will be in the White House after Trump’s second term ends.
Antitrust regulators have paid close attention to the market in the past. The last time AMD played second fiddle in chips it was Intel that was the industry behemoth.
The FTC opened an inquiry into Intel in 1991, looking into potential anticompetitive practices in the PC market, and AMD filed a $2 billion antitrust suit against the company that year. The FTC never brought charges, and AMD and Intel ultimately settled their case.
Now AMD is worth about twice as much as Intel. And, after a spate of dealmaking, Intel’s largest shareholder is the U.S. government, followed not far behind by Nvidia.
WATCH: OpenAI’s deal spree
