Another mark-moving AI chip deal: Reason to buy or is this just more 'money going in a circle'?

OpenAI's investment in Advanced Micro Devices (AMD), involving a warrant for a potential 10% stake in exchange for deploying AMD Instinct GPUs, prompted a 30%+ rally in AMD shares, fueling broader AI investment enthusiasm. However, analysts are flagging concerns about "circular deals" and vendor financing reminiscent of the Dotcom Bubble, particularly given Nvidia's prior $100 billion cash investment in OpenAI, despite acknowledging some differences in the current context. This trend underscores significant capital inflows into AI infrastructure but also raises questions about deal structures within the sector.

Analysis

OpenAI's investment in Advanced Micro Devices announced Monday is the latest deal to reignite enthusiasm around the AI investing trend, sparking a huge rally in shares of the chipmaker involved. But some analysts and investors have been raising eyebrows at the kinds of deals being hatched, seeing similarities to the vendor financing agreements that happened in the latter stages of the Dotcom Bubble. The buzzy ChatGPT startup could end up with a 10% stake in AMD under the agreement. OpenAI will deploy as many as 6 gigawats of AMD Instinct graphics processing units over a multiyear period. AMD issued a warrant to OpenAI for up to 160 million shares. Shares of AMD soared more than 30% in early trading on Monday, while well-known competitor Nvidia ticked down nearly 2%. The AMD deal comes just weeks after Nvidia announced it would invest up to $100 billion in OpenAI as it looked to expand data center capabilities. "When you see the money going in a circle, it raises some flags," said Chris Caso of Wolfe Research on CNBC's "Squawk Box" on Monday. AMD 1D mountain AMD, 1-day Caso pointed out that OpenAI is using warrants to help finance the deal. The analyst said it can draw some parallels to vendor financing concerns during the Dotcom Bubble, though he noted that this situation is "different" than what happened during that period in some ways. Nvidia, on the other hand, made its investment into OpenAI in cash, he said. However, some on Wall Street argued that the deal could be viewed as fitting the bill for a circular deal, with Nvidia giving OpenAI money to then have its chips bought by the startup. Caso said he's previously liked Nvidia the best as a stock because its valuation has remained constant and its market share isn't a concern. Yet he said the announcement this morning forecasting tens of billions of revenue for AMD is a "big deal." Both stocks have surged more than 35% in 2025. "For Nvidia, we're very comfortable," Caso said. "The valuation is reasonable. They're right in the middle of this. I find it hard to find a scenario where AI works and Nvidia doesn't work." Nvidia's OpenAI deal had propelled the stock market to all-time highs last month. Stocks popped in early Monday trading following OpenAI's AMD investment. OpenAI's agreement to deploy AMD Instinct GPUs, financed via a warrant for up to 160 million shares, has catalyzed a significant rally in AMD, with its stock soaring over 30%. This deal, which could provide AMD with tens of billions in future revenue, is perceived as a major validation of its competitive standing against Nvidia in the AI accelerator market. However, the structure of the deal has drawn scrutiny from analysts, who note similarities to the vendor financing arrangements prevalent during the dot-com bubble. This concern 집중 'circular' capital flows, where OpenAI receives a warrant to help finance its purchase of AMD's hardware. This is contrasted with Nvidia's recent, albeit also questioned, cash investment into OpenAI. While Nvidia's stock dipped nearly 2% on the news, analysts like Wolfe Research's Chris Caso maintain a comfortable outlook on Nvidia, citing its reasonable valuation and central role in the AI ecosystem. Nonetheless, the magnitude of the AMD deal is acknowledged as a transformative event for the company, intensifying the competitive dynamics in a sector where both stocks have already appreciated over 35% in 2025.

Key Decisions for Investors

• Investors should re-evaluate AMD's growth trajectory and market share potential, as the OpenAI deal provides a significant revenue pipeline and a powerful validation of its GPU technology against the industry leader.
• For Nvidia positions, it is crucial to monitor for any evidence of market share erosion, as this deal represents the most significant competitive challenge to its AI market dominance critérios, even though its fundamental position is still viewed as secure.
• Exercise caution and conduct heightened due diligence on the financing structures of large AI-related deals across the sector, as the highlighted concerns over 'circular' funding could be an early indicator of market froth and systemic risk.