OpenAI has agreed to pay Amazon $38 billion for computing power in a 7-year deal that marks the first partnership between the companies, as the loss-making start-up’s total commitments approach $1.5 trillion and concerns grow over circular financing arrangements reminiscent of the dot-com crash.
The deal will help satisfy OpenAI’s rapidly growing computing needs, with Amazon expecting all negotiated computing capacity to be available by the end of next year, reports the Wall Street Journal. OpenAI will train new AI models using Amazon’s data centres and use them to process ChatGPT queries, and could also use Amazon’s central processing units to power agentic AI where the technology completes tasks autonomously.
However, OpenAI’s voracious appetite for computing power led to a loss of around $12 billion in the last quarter alone, according to financial disclosures by Microsoft, as reported by the Financial Times. The company’s revenue has surged to $13 billion on an annualised basis, and Chief Executive Sam Altman said this week that it could hit $100 billion by 2027.
The agreement is considerably smaller than OpenAI’s $300 billion deal with Oracle and $250 billion commitment to Microsoft. OpenAI has struck a series of massive deals this year with companies including Nvidia, AMD, Oracle, Broadcom, Google and Samsung, with total commitments close to $1.5 trillion. The contracts are structured so OpenAI will pay in increments as new power is developed and delivered.
Circular financing patterns
The deal adds to concerns about circular financing patterns in the AI industry. As theFreesheet previously reported, artificial intelligence companies are engaging in arrangements where billions of dollars flow between the same group of firms in complex dependency loops. Morgan Stanley mapping of capital flows between six companies including OpenAI, Nvidia, Microsoft, Oracle, AMD and CoreWeave shows connections that analysts say resemble a plate of spaghetti.
Nvidia’s proposed $100 billion investment in OpenAI exemplifies this pattern, with the investment helping OpenAI cover its infrastructure costs, while Nvidia stands to recoup its investment through chip sales to OpenAI. AMD issued warrants for OpenAI to buy up to 10 per cent of AMD at a penny a share to secure OpenAI as a customer, essentially paying OpenAI to become a buyer.
The arrangements parallel vendor financing practices during the late 1990s and early 2000s, when telecom equipment makers extended credit to customers for gear purchases. Lucent Technologies lent billions to upstart telecom providers building infrastructure, fuelling rapid sales growth, but when customers went bust, Lucent had to write off bad debts and book huge losses.
Altman said he wants to add 1 gigawatt of new capacity per week from 2030, an amount of power roughly equivalent to the output of a nuclear power plant. Experts question the feasibility of developing such a large amount of new capacity so quickly, as well as OpenAI’s ability to fund it.
Amazon is under pressure from investors to accelerate the growth of its Amazon Web Services cloud business. AWS is the industry’s largest cloud provider, but rivals such as Microsoft and Google have reported faster cloud revenue growth in recent years after capturing new demand from AI customers. The company said revenue from its cloud business grew 20 per cent in the latest quarter, the fastest rate of growth since 2022.
The deal follows OpenAI’s restructure last week, which allowed investors to hold equity in the company for the first time and cleared the path for an initial public offering. As part of the restructure, OpenAI also rewrote a contract which gave Microsoft a right of first refusal on new cloud contracts, clearing the path for the AWS deal.
