Nvidia and Microsoft Just Teamed Up For a Massive AI Deal. Is It The Latest Sign of an AI Bubble?

Key Takeaways

• Shares of Nvidia and Microsoft slid on Tuesday after the tech giants announced they would invest in the private startup Anthropic in exchange for a commitment to buy their chips and cloud computing services. 
• Big deals like the one announced Tuesday used to send AI stocks soaring, but worries about a bubble have shifted sentiment and weighed on tech stocks in recent weeks.

Big artificial intelligence deals aren’t what they used to be. 

Nvidia (NVDA) and Microsoft (MSFT) on Tuesday announced a partnership with private AI startup Anthropic that will see the latter buy $30 billion of cloud computing capacity from Microsoft and contract up to 1 gigawatt of additional capacity. The first gigawatt of Anthropic’s commitment will run on Nvidia’s Grace Blackwell and Vera Rubin systems. In exchange, Nvidia and Microsoft have agreed to invest up to $10 billion and $5 billion, respectively, in Anthropic. 

The deal expands a web of entanglements between AI software makers, chip companies and cloud operators that has elicited suspicion on Wall Street. Nvidia has agreed to invest up to $100 billion in OpenAI, which vowed to buy or lease 10 gigawatts worth of Nvidia chips. OpenAI has also committed to acquiring 6 GW of chips from Nvidia competitor Advanced Micro Devices (AMD), which, as part of the deal, awarded OpenAI stock warrants that could give the ChatGPT maker a nearly 10% stake. Nvidia upped its investment in CoreWeave (CRWV) when the cloud computing provider went public in March, and, in September, agreed to buy all of CoreWeave’s excess cloud capacity until 2032. 

Why This Is Important

Tech stocks and enthusiasm for AI have propelled the stock market higher for much of the past three years. Those stocks, which now account for a sizable share of the major stock indexes, have struggled lately due to fears about an AI bubble.

These and other agreements raised concerns that the AI craze on Wall Street was being fueled by splashy deals that overstate the size of the industry and demand for its services. At the same time, investors have become increasingly concerned that AI revenue won’t compensate big tech companies like Amazon (AMZN) and Meta (META) for their massive data center investments anytime soon.

AI stocks used to skyrocket on deals like the one announced Tuesday, but debates around the AI bubble have weighed on sentiment lately. Shares of Nvidia, which is due to release its quarterly results on Wednesday, were down more than 1% in early-afternoon trading and have lost about 10% of their value since the start of the month. Microsoft stock was recently down 3%, putting it about 9% off its recent record high. 

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