$38 Billion Deal Between Amazon and OpenAI!

Amazon (AMZN) shares gained about 5% on Monday morning following the company's announcement of a $38 billion deal with OpenAI (OPAI.PVT). With this agreement, OpenAI will gain access to tens of thousands of artificial intelligence chips produced by Nvidia (NVDA) through Amazon's cloud computing infrastructure.

Within the framework of the partnership, OpenAI will run AI workloads on Nvidia GPUs (graphics processing units) hosted on Amazon's AI servers. The companies stated that OpenAI will immediately start utilizing the AI infrastructure provided by Amazon Web Services to reach the total computing capacity specified in the agreement by the end of 2026.

This move is recorded as the newest of OpenAI's agreements with cloud providers and chip manufacturers. OpenAI also has a $300 billion deal with Oracle (ORCL) and agreements worth over $22 billion with CoreWeave (CRWV). Recently, OpenAI has signed agreements with Broadcom (AVGO), AMD (AMD), and Nvidia (NVDA) as well.

Cyclical AI agreements raise fears about a potential bubble forming in the market while also raising concerns that the demand for AI may be overstated. OpenAI's costs are expected to exceed $1 trillion by 2030, while its revenues may fall well below that amount, raising questions about whether the company can meet its most recent AI infrastructure commitments.

On the other hand, OpenAI announced last week a new agreement with Microsoft (MSFT) that would allow it to become a nonprofit public-benefit organization. This situation is paving the way for the ChatGPT creator to go public. According to a Reuters report, the company is reportedly preparing for an initial public offering valued at $1 trillion.

Amazon reported its third-quarter earnings above analyst expectations last week, pushing its shares to an all-time high, while AWS completed a major AI data center project last Wednesday and announced it would be ready to supply one million dedicated AI chips for OpenAI's competitor Anthropic by 2025.