AMD<\/a>. It will receive warrants in AMD\u2019s common shares upon certain milestones. We tend to think of this deal as less circular, because OpenAI might not necessarily use any windfalls in AMD\u2019s stock to buy more of the firm\u2019s GPUs. Still, the deal entangles the two parties a bit more than an arm\u2019s-length supplier relationship.<\/p>\nCircular Deals Raise Some Short- and Long-Term Concerns<\/p>\n
We think these types of circular deals are raising eyebrows among investors. In the near term, the circularity makes it plausible for Nvidia to push more GPUs into OpenAI\u2014say, to meet a quarterly revenue target\u2014it may have some influence on OpenAI\u2019s investments. We don\u2019t think this is the case today, and we don\u2019t anticipate it in the future, since these types of short-term moves typically end badly for chipmakers. Still, the risk would be a bit more plausible if Nvidia were to take material ownership of shares of OpenAI.<\/p>\n
For Nvidia and CoreWeave, we foresee similar short-term risks wherein Nvidia could conceivably push GPUs onto the company. That said, Nvidia is on the hook for any excess capacity at CoreWeave, so it likely has incentive to avoid this exact scenario. Still, the companies have a tight and integrated partnership.<\/p>\n
At a higher level, investors during the dot-com era are also wary of vendor financing and circular deals, which were hallmarks of spending at that time. Anyone scarred by the dot-com bubble bursting is keenly aware of the risks of a circular deal in which firms pass funds back and forth to prop up a business. Again, we don\u2019t think this risk is present today, and we\u2019re skeptical this will occur in the long term, since AI demand is both real and booming, but it bears watching.<\/p>\n
We Don\u2019t Think These Circular Deals are Troublesome Yet<\/p>\n
At this point, we are keeping an eye on these types of deals, but we\u2019re not yet alarmed by them and think of them as arm\u2019s-length transactions. OpenAI and CoreWeave must invest a good amount of their funds (wherever they can get it) to buy gear from Nvidia. Thus, it was previously a one-way transaction where the cash flows to Nvidia and the GPUs go to OpenAI and CoreWeave.<\/p>\n
Nvidia now has the pleasant problem of what to do with all its newfound cash, and they also have a terrific view on where innovation is headed in AI. Both OpenAI and CoreWeave have been hot investments for private and public investors during this boom, and Nvidia could do far worse in finding places to invest.<\/p>\n
Looking at OpenAI, Nvidia\u2019s investments essentially \u201cclose the loop\u201d from a one-way deal to a circular one. Despite the circular nature of this deal (either in perception or reality), Nvidia\u2019s investment might be wise if OpenAI lives up to its lofty aspirations. As far as we can tell, there is no guarantee that OpenAI must put Nvidia\u2019s investments back into buying AI gear. However, it\u2019s likely that OpenAI will be buying more Nvidia gear anyway. Thus, it\u2019s proper for investors to think of this deal as circular.<\/p>\n
We view the CoreWeave-Nvidia deal as a bit more tangled. Nonetheless, Nvidia\u2019s investments in CoreWeave have also paid off handsomely so far.<\/p>\n","protected":false},"excerpt":{"rendered":"We\u2019re watching a new trend in semiconductor stocks concerning circular deals. Here\u2019s why we think investors should be…\n","protected":false},"author":2,"featured_media":26099,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,218,219,61,60,80],"class_list":["post-64680","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-ie","tag-ireland","tag-technology"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/64680","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=64680"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/64680\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/26099"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=64680"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=64680"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=64680"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}