The OpenAI Trade Isn't Microsoft Anymore. Here's Where Smart Money May Be Looking.
Key Points
OpenAI and Microsoft aren't on good terms anymore, with the companies competing against each other.
Nvidia looks like the better play leading up to OpenAI's IPO since ChatGPT needs GPUs to function and improve.
Nvidia continues to post tremendous revenue growth as its AI chips see strong demand from hyperscalers with deep pockets.
- 10 stocks we like better than Nvidia ›
Back in 2023, investors viewed Microsoft (NASDAQ: MSFT) as one of the best options to get direct exposure to OpenAI. That's because the tech giant announced a multiyear, multibillion-dollar investment in OpenAI that could reach $10 billion.
It wasn't Microsoft's first investment in the company, and the two of them seemed close. However, the good relationship has turned a bit sour, with Microsoft releasing products that directly compete with ChatGPT.
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Microsoft no longer seems like the top stock to buy for direct exposure to OpenAI, but there is still a great option. Nvidia (NASDAQ: NVDA) appears to be the best choice for investors who want exposure to OpenAI before its IPO.
Image source: Getty Images
OpenAI needs chips
OpenAI needs AI infrastructure to run ChatGPT and future services, and that infrastructure is only possible with Nvidia's chips. As OpenAI's revenue continues to scale, the need for more AI chips will grow.
OpenAI hasn't been shy about saying it will have to spend a lot of money. Investors were recently told that the company may spend $115 billion through 2029. A lot of that money will have to go to AI chips.
Nvidia isn't the only AI chipmaker. Broadcom and Advanced Micro Devices are two other viable options, and OpenAI does business with both of them. However, Nvidia has established itself as the golden standard of GPUs, and it's not even close. Nvidia's net income is higher than the combined revenue of Broadcom and Advanced Micro Devices.
Nvidia supplies chips to every major company
The artificial intelligence opportunity encompasses many components. AI data centers, liquid cooling systems, raw materials, optical cables, and other pieces. There are competitors in each of those industries that are vying for market share.
All of this activity revolves around AI chips, and Nvidia is the distinguished leader in the industry. It doesn't rely on OpenAI for revenue and can already deliver superb sales and earnings growth with parabolic demand from hyperscalers, AI start-ups, and other companies.
Nvidia delivered 85% year-over-year revenue growth in its fiscal 2027 first quarter, while more than tripling its net income. Microsoft can't compete with those results, even with its cloud platform.
OpenAI has to compete with companies like Anthropic and xAI. It's also squaring off against hyperscalers with substantial profits, like Microsoft, Meta Platforms, and Amazon. All of these companies want more Nvidia chips. That's OpenAI's problem, and it gives Nvidia the green light to raise AI chip prices and secure higher margins.
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Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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