If there’s an AI bubble, it’s nowhere in sight.
Heading into 2025, the biggest question for Nvidia (NVDA -3.12%) is whether the artificial intelligence (AI) chip superstar can continue to grow at a breakneck pace.
Some investors have argued that an AI bubble is forming, and there is evidence that the new technology is following in the footsteps of earlier bubbles due in part to the dramatic growth in some AI stocks. Nvidia has been the flag bearer for the AI boom thus far after posting several quarters of triple-digit revenue growth, and there were news reports earlier this month that should reassure investors that the company and the broader AI sector still have a long runway of growth in front of them.
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AI start-ups are on fire
ChatGPT creator OpenAI might be a household name by now, but there’s a lesser-known AI start-up that is starting to make waves.
That’s Anthropic, the creator of the Claude AI chatbot, which counts Amazon and Alphabet among its backers, having raised billions of dollars from the tech giants. Anthropic is now in talks for a massive new funding round, and it’s a bullish signal for Nvidia and the broader sector as well.
According to multiple media outlets, Anthropic was in advanced talks earlier in January to raise $2 billion at a price that values the company at $60 billion, up from a valuation of $16 billion less than a year ago.
The news is the latest sign of skyrocketing valuations for privately held AI start-ups, which show growing investor enthusiasm for AI and confidence that companies like Anthropic will justify that valuation over the long term, eventually generating billions in profits.
Ultimately, the frenzy over AI start-ups will benefit Nvidia as a significant chunk of that $2 billion is likely to be spent on Nvidia chips to power Anthropic’s AI models.
Anthropic has a history of working with Nvidia and buying its chips, though the company said it would use Amazon’s Trainium and Inferentia chips to train future foundation models when it took $4 billion from Amazon last November.
The details of the current funding round aren’t clear as it hasn’t closed, but the deal is likely to yield a windfall for Nvidia in some capacity as it is widely recognized as the leader in AI chip technology, and fully tying itself to Amazon could make Anthropic less competitive. Even Amazon Web Services CEO Matt Garman has said that the company views its AI processors as a “supplement” to Nvidia’s GPUs rather than a replacement.Â
The funding round also adds fuel to the AI arms race among start-ups and should encourage investors in rival companies to shell out billions more. OpenAI, for example, completed a $6.6 billion funding round valuing the company at $157 billion in October.
OpenAI has been a major customer of Nvidia, and Nvidia CEO Jensen Huang hand-delivered the first H200 AI supercomputer to OpenAI. The Sam Altman-led start-up has visions of developing its own AI chips, but that’s likely years away. For the foreseeable future, it will be reliant on Nvidia’s chips, and its recent funding round could mean billions more flowing into Nvidia’s coffers. Nvidia was also an investor in the round, which could strengthen its relationship with the AI start-up.
What it means for Nvidia
While big tech companies like Amazon and others are working on their own AI chips, it’s going to be difficult to dethrone Nvidia, whose market share in data center GPUs is estimated to be around 95%. Nvidia continues to rapidly innovate, preparing its Rubin platform as a more advanced version of the recently released Blackwell.
Nvidia also benefits from a flat management structure that makes decision-making faster and easier and avoids the kind of siloing that has plagued competitors like Intel. Finally, it has an advantage over potential rivals like Amazon as it’s a dedicated pure-play semiconductor company, while businesses like Amazon have other priorities.
Nvidia’s AI foundation arguably began in 2006 when it launched its CUDA parallel computing model that now contains hundreds of software libraries and AI models, showing it has a significant technological advantage. CEO Jensen Huang has long been regarded as a visionary in AI as well.
Overall, what’s good for AI is good for Nvidia, and the billions flowing into start-ups at soaring valuations show the AI boom and Nvidia’s AI-driven growth still have a long way to run. Expect Nvidia to deliver another strong year for investors in 2025.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
