NVIDIA's deep investment in OpenAI is a strategic bet on its potential to become a dominant hyperscaler like Google or Meta. This reframes the relationship from a simple vendor-customer dynamic to a long-term partnership with immense financial upside, justifying the significant capital commitment.

To counter the competitive threat from Google's TPUs, NVIDIA avoids direct price cuts that would hurt its gross margins. Instead, it offers strategic equity investments to major customers like OpenAI, effectively providing a "partner discount" to secure their business and maintain its dominant market position.

SoftBank's strategy of selling its Nvidia stake to fund companies like OpenAI, whose main expense is buying Nvidia chips, creates a circular flow of capital within the AI ecosystem. This financial loop suggests that major investment funds are not just placing bets but actively fueling the valuation cycle between AI infrastructure and application layers.

NVIDIA's financing of customers who buy its GPUs is a strategic move to accelerate the creation of AGI, their ultimate market. It also serves a defensive purpose: ensuring the massive capital expenditure cycle doesn't halt, as a market downturn could derail the entire AI infrastructure buildout that their business relies on.

Seemingly strange deals, like NVIDIA investing in companies that then buy its GPUs, serve a deep strategic purpose. It's not just financial engineering; it's a way to forge co-dependent alliances, secure its central role in the ecosystem, and effectively anoint winners in the AI arms race.

NVIDIA's multi-billion dollar deals with AI labs like OpenAI and Anthropic are framed not just as financial investments, but as a form of R&D. By securing deep partnerships, NVIDIA gains invaluable proximity to its most advanced customers, allowing it to understand their future technological needs and ensure its hardware roadmap remains perfectly aligned with the industry's cutting edge.

Even if Google's TPU doesn't win significant market share, its existence as a viable alternative gives large customers like OpenAI critical leverage. The mere threat of switching to TPUs forces NVIDIA to offer more favorable terms, such as discounts or strategic equity investments, effectively capping its pricing power.

OpenAI's deal structures highlight the market's perception of chip providers. NVIDIA commanded a direct investment from OpenAI to secure its chips (a premium). In contrast, AMD had to offer equity warrants to OpenAI to win its business (a discount), reflecting their relative negotiating power.

While the circular nature of NVIDIA investing in OpenAI (who then buys NVIDIA chips) evokes memories of disastrous dot-com era deals, it also parallels a successful model. In 2012, ASML's customers like Intel and TSMC co-invested to fund next-gen tech they needed, which proved highly successful for all parties.