OpenAI pays $38bn in power grab
The maker of ChatGPT has agreed a $38 billion deal to use Amazon infrastructure, underscoring the enormous investments being made to secure the computer power needed to develop artificial intelligence.
OpenAI will pay Amazon Web Services for access to infrastructure including hundreds of thousands of graphics processors from Nvidia, the giant AI chips group, to train and run its AI models.
On the news, Amazon shares hit a record high, valuing the company at $2.74 trillion in intra-day trading. Paolo Pescatore, an analyst at PP Foresight, said: “This is a hugely significant deal [and is] clearly a strong endorsement of AWS compute capabilities.”
Last week Nvidia became the world’s first $5 trillion company, apparently defying fears of an investment bubble in AI and associated stocks. Microsoft said last week that its Azure cloud business, its key AI unit, grew 40 per cent in the most recent quarter, outpacing estimates of 38 per cent. Nvidia’s value is now about half the size of Europe’s entire benchmark equities index.
A web of circular deals underpinning demand for AI businesses, including a string of investments where Nvidia used its enormous financial muscle to invest in its own customers, has heightened concerns of a bubble.
Soaring valuations and doubts over the extent of productivity gains the technology provides have also prompted worries about whether the boom will last. Institutions ranging from the Bank of England to the International Monetary Fund have raised concerns.
OpenAI, whose ChatGPT large language model, or LLM, triggered a wave of investment in AI, has already signed agreements with Nvidia, AMD and Oracle to access greater computing power.
Sam Altman, its chief executive, has said the business is committed to spending $1.4 trillion to develop 30 gigawatts of computing resources.
The Amazon deal follows Open AI’s finalising a restructuring plan with its external shareholder Microsoft that values it at $500 billion and clears the way for it to become a for-profit business.
OpenAI, which was founded as a research-focused non-profit business in 2015, will take on a more investorfriendly structure to allow it to raise capital. A non-profit called the OpenAI Foundation will hold equity in the company’s for-profit arm. The deal removed Microsoft’s first right to refusal to supply compute services to OpenAI.
Its agreement with Amazon represents a vote of confidence in the ecommerce giant’s cloud unit, Amazon Web Services, which some investors feared had fallen behind rivals such as Microsoft and Google in the AI race. Those fears were eased by the strong growth the business reported in the September quarter.
Altman said: “Scaling frontier AI requires massive, reliable compute. Our partnership with AWS strengthens the broad compute ecosystem that will power this next era and bring advanced AI to everyone.” Under the deal, Open- AI will begin using Amazon Web Services immediately, with all planned capacity set to come online by the end of 2026 and room to expand further in 2027 and beyond.
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