Amazon's $38 Billion Deal with OpenAI!

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

Within the scope 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 would immediately start utilizing the AI infrastructure provided by Amazon Web Services to reach the full computing capacity outlined in the agreement by the end of 2026.

This move marks the latest in a series of agreements OpenAI has made with cloud providers and chip manufacturers. OpenAI also has a $300 billion deal with Oracle (ORCL) and agreements worth more than $22 billion with CoreWeave (CRWV). Recently, OpenAI signed agreements with Broadcom (AVGO), AMD (AMD), and Nvidia (NVDA) as well.

The cyclical AI agreements raise fears of a potential bubble in the market, along with concerns that the demand for AI may be exaggerated. OpenAI's costs are expected to exceed $1 trillion by 2030, while its revenues are anticipated to fall significantly short of that figure, raising questions about the company's ability to meet its latest AI infrastructure commitments.

On the other hand, OpenAI announced last week a new deal with Microsoft (MSFT) that allows it to become a non-profit public benefit organization. This situation paves the way for the ChatGPT creator to go public. According to a report by Reuters, the company is said to be preparing for an initial public offering with a valuation of $1 trillion.

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