From The Economist, October 9:
To gauge the centrality of the AI superstar, we conduct a thought experiment
LOOK AROUND the world of artificial intelligence and OpenAI is everywhere. In early September ChatGPT’s creator reportedly struck a deal to buy perhaps $10bn-worth of custom AI chips from Broadcom. A fortnight later the startup revealed that Nvidia, Broadcom’s larger rival, would invest up to $100bn in it over several years while selling it graphics-processing units (GPUs) worth that amount. On October 6th OpenAI announced a deal with AMD, a third chipmaker, of similar size and circularity. This time it is OpenAI that may take a stake in AMD, which would sell it silicon worth an estimated $90bn or so between 2026 and 2030.This is the past month alone—and just chips. In that time OpenAI also agreed to buy $300bn in computing power from Oracle, a data-centre giant; plugged popular apps such as Booking.com, Spotify and Zillow into ChatGPT, letting users search for hotels, songs and flats via the chatbot; and gave Hollywood a jump scare with Sora 2, its new video-generating app. Along the way it became the world’s most valuable startup, rocketing past SpaceX, after raising $6.6bn at a price tag of $500bn.
OpenAI may be a way off attaining its goal of creating superintelligence. But Sam Altman, its boss, already wields God-like power over markets. The Broadcom, Nvidia and AMD announcements added almost $200bn, $160bn and over $60bn—or 13%, 4% and 24%—to the respective chipmakers’ market values. Oracle’s shot up by more than $250bn when its OpenAI contract came to light, climbing above $900bn.
The ubiquity of Mr Altman and his startup, plus its convoluted links to other AI firms, is raising eyebrows. An awful lot seems to hinge on a firm forecast to lose $10bn this year on revenues of little more than that amount. D.A. Davidson, a broker, calls OpenAI “the biggest case yet of Silicon Valley’s vaunted ‘fake it ’till you make it’ ethos”. Only Nvidia is more central to the AI boom, going by the scale of the industry’s incestuous relationships. To understand the model-maker’s centrality to the whole ai enterprise, consider a thought experiment. What if OpenAI went bust?
Such an outcome is unlikely but not inconceivable. The firm will probably not turn a profit for years. Lawyers predict that Sora could provoke a flood of costly lawsuits from copyright-owners whose intellectual properties, from SpongeBob SquarePants to Ronald McDonald, are already popping up in user-generated clips. Mr Altman would not be the first boss whose knack for getting investors to part with cash looked preternatural until it didn’t. Even if it does not come to that, a thought experiment to test how the AI edifice holds up if you remove the keystone can be instructive; it lets you evaluate what you might call key-firm risk.
The immediate casualties of ClosedAI would be the shareholders. Since its founding ten years ago the startup has raised a total of $35bn from 149 investors. Most would smart but survive; 45 of them also back Anthropic, OpenAI’s model-making rival, according to data from PitchBook, a deal-tracker. Mr Altman’s 4,500 brainy employees would see the value of their stock options go to zero but find other work without breaking a sweat.
The impact on OpenAI’s counterparties would be more mixed. Oracle’s $300bn in contractual commitments from OpenAI would evaporate—so would the related shareholder gains. AMD, which certain analysts now think will be supplying Oracle with most of the GPUs required to fulfil the contract, may also see sales drop. But the hit to its owners would be alleviated by OpenAI not being around to exercise its warrants and thus dilute their stakes.
For other chipmakers the result may be close to a wash. Companies other than OpenAI are lining up to get their hands on AI chips. Nvidia’s three largest customers, which accounted for 34% of sales last year, are believed to be Microsoft, Amazon and Meta. Broadcom sells lots of chips to Alphabet, Google’s $3trn parent company and OpenAI’s other big competitor in model-building.
The problem for the chip firms is not lack of demand but constrained supply. Nvidia and Broadcom, as well as AMD and other designers of AI processors such as Marvell, which makes them for Amazon’s cloud, outsource virtually all their manufacturing to TSMC. The Taiwanese firm is raising capital spending by 15% a year. Between the last quarter of 2022, when ChatGPT began turning heads, and the second quarter of this year its fixed assets expanded by 30%. That looks like a lot—until you realise that the combined quarterly sales of Nvidia, Broadcom and AMD more than tripled in that period.
Alt-ernative history
TSMC’s share price thus shrugs off most OpenAI news. Other companies suffer when Mr Altman presents his latest partnership. Four of OpenAI’s six big deal announcements this year were followed by a total combined net gain of $1.7trn among the 49 big companies in Bloomberg’s broad AI index plus Intel, Samsung and SoftBank (whose fate is also tied to the technology)....
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