:max_bytes(150000):strip_icc()/GettyImages-2244440792-91bbb49b61c64ee5b0404512a356b178.jpg "Amazon Eyes Major Investment in OpenAI, in What Could Be Tech’s Next Big Circular Deal")
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Key Takeaways
- Amazon is reportedly in talks with OpenAI about investing $10 billion or more in the ChatGPT maker. The deal is also expected to see OpenAI use Amazon AI chips.
- Earlier this year, OpenAI agreed to buy $38 billion in cloud computing capacity from Amazon Web Services over the next several years.
Amazon (AMZN) could be set to unveil an investment of $10 billion or more in ChatGPT maker OpenAI.
The companies are in talks for a deal that would see OpenAI buy some of Amazon’s custom AI chips, and that would likely push OpenAI’s valuation above $500 billion, according to a report from The Information confirmed by CNBC.
The talks reportedly started in October, after OpenAI completed its restructuring to a for-profit company with an agreement with Microsoft (MSFT), its largest investor, making it easier for OpenAI to seek funding from other companies.
Amazon and OpenAI did not respond to Investopedia requests for comment in time for publication.
Why This Matters to Investors
If confirmed, the deal between Amazon and OpenAI would represent the latest in a string of big circular deals in the AI space, with major cloud and hardware providers investing in startups that also count them as suppliers. Such deals have exacerbated worries about an AI bubble, drawing parallels with the dotcom bubble of the late 1990s.
OpenAI has already signed over $1 trillion in agreements in recent months to buy chips and computing power. The startup struck massive chip deals Nvidia (NVDA) and Advanced Micro Devices (AMD), and agreed to buy $38 billion in computing power from Amazon Web Services earlier this year.
OpenAI’s ChatGPT and other products don’t currently generate enough revenue to cover those commitments, however, raising concerns the company may continue pulling in money from investors and lenders in the years to come before it turns a profit.
Investors and analysts have grown increasingly skeptical in recent months of the growing number of circular deals within the AI industry, viewing them as unsustainable signals of a brewing AI bubble.
Amazon shares were up less than 1% in recent trading, leaving them just 2% higher for the year so far and about 12% off their highs last month after a pullback in tech stocks in recent weeks.
