Nvidia's $100B OpenAI Pact Buys Time in the Custom Chip Race

Key Points

• Nvidia and OpenAI recently signed a letter of intent for 10-plus gigawatts of AI infrastructure, with Nvidia investing up to $100 billion in the AI pioneer.

• The partnership locks in OpenAI's training needs through 2028 while custom chips remain in development.

• Deal complements the $500 billion Stargate project, providing concrete demand visibility for Nvidia's growth trajectory.

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Wall Street's AI infrastructure story just got its biggest validation yet. Nvidia (NASDAQ: NVDA) and OpenAI's strategic partnership, which will deploy at least 10 gigawatts of computing power starting with the Vera Rubin platform in late 2026, turns lofty artificial intelligence (AI) buildout talk into staged deployments with tangible financial implications.

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Why OpenAI needs Nvidia (for now)

The timing reveals OpenAI's pragmatic calculus. Yes, the company is developing custom chips with Broadcom for 2026 deployment. But replicating Nvidia's full stack -- CUDA software, NVLink networking, and years of optimization -- would delay scaling when every month matters in the AI race.

This isn't about abandoning custom silicon. It's about securing proven capacity while keeping long-term options open. OpenAI gets immediate scale; Nvidia gets multi-year revenue visibility.

The Stargate reality

This deal slots neatly into January's $500 billion Stargate blueprint -- a four-year U.S. infrastructure buildout anchored by an initial $100 billion tranche. What many dismissed as overreach now carries more weight with Nvidia attaching capital and hardware.

The structure is phased: Nvidia invests as capacity comes online, echoing Microsoft's staged OpenAI funding. It's a reciprocal arrangement rather than a closed loop, though the scale ensures regulators will give it a close look.

Competition tightens, not ends

Advanced Micro Devices now faces a higher bar for OpenAI-scale wins, but MI300-class deployments at other hyperscalers remain very much in play. The upcoming MI350 and a broader Xilinx software stack underscore that AMD isn't standing still.

At the same time, Nvidia has bolstered its ecosystem with a $5 billion Intel stake and a custom x86 CPU partnership -- a move that not only deepens its platform but also provides foundry optionality beyond Taiwan Semiconductor.

For hyperscalers like Alphabet, Amazon, and Microsoft, the takeaway is clear: their most visible AI peer is tied to Nvidia through 2028. Yet each tech giant will continue investing in in-house silicon to control costs and secure strategic independence.

Valuation with fresh context

At about 26 times projected fiscal 2028 earnings, Nvidia trades at a premium -- but one justified by its growth profile. Street forecasts already had revenue climbing toward $257 billion in fiscal 2027, numbers issued before this OpenAI pact that could raise the ceiling further.

Even so, not everyone views the deal as transformative. Morningstar, for example, kept its fair value estimate at $190 per share, underscoring both execution risk and the stock's already lofty expectations. With shares up 58% over the past year to $182 (as of Sept. 22, 2025), that implies modest upside -- hardly the setup for explosive gains.

Power becomes the constraint

The limiting factor is no longer chips -- it's electricity. U.S. data centers drew about 4.4% of the nation's power in 2023, and Department of Energy projections put that share as high as 12% by 2028. Each new gigawatt of capacity is roughly equivalent to adding a nuclear reactor.

That reality is pushing tech companies to explore small modular reactors and other nontraditional sources. Intel's foundry partnership broadens supply chain geography, but grid capacity remains the choke point.

Platform leadership takes shape

The OpenAI pact locks Nvidia into the next wave of training cycles and reinforces its ecosystem lead. It doesn't end the custom silicon race, but it gives both sides time to advance their strategies.

For investors, the message is simple: Nvidia is committing up to $100 billion in staged capital and hardware to OpenAI's buildout -- an investment that ultimately flows back into its own ecosystem. The stock isn't cheap, but the premium reflects a level of certainty few other tech growth stories can match.

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George Budwell has positions in Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Intel, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.