Nvidia Soars to Record High Following OpenAI Partnership - Is This ’Ten Titans’ Growth Stock Your Next Buy?

Nvidia rockets to unprecedented heights after sealing a groundbreaking deal with artificial intelligence powerhouse OpenAI.

The AI Hardware Revolution

Graphics processing units become the new gold rush as Nvidia's chips power the next generation of artificial intelligence. The OpenAI partnership cements their dominance in the AI infrastructure space, leaving competitors scrambling to catch up.

Market Frenzy Meets Reality

Investors pile into the semiconductor giant as trading volumes spike dramatically. The 'Ten Titans' designation suddenly feels conservative when a single partnership can add billions to market capitalization overnight. Wall Street analysts scramble to update their price targets while retail investors FOMO into the rally.

The Cynical Take

Another day, another 'game-changing' partnership that will definitely not be forgotten when the next earnings report misses expectations by 0.3%. The finance world thrives on hype cycles that make crypto volatility look stable by comparison.

Nvidia either redefines technological dominance or becomes another case study in market overexuberance. The chips literally and figuratively fall where they may.

Image source: Getty Images.

Nvidia's deal with OpenAI

As I've mentioned in the past, Nvidia is a steelmaker at the dawn of the age of skyscrapers. Nvidia makes the most advanced graphics processing units (GPUs) -- as well as associated networking components and software. These systems play an integral role in the parallel processing of AI workloads that require massive amounts of computing power. As OpenAI co-founder and CEO Sam Altman said in the Sept. 22 press release:

Everything starts with compute. Compute infrastructure will be the basis for the economy of the future, and we will utilize what we're building with Nvidia to both create new AI breakthroughs and empower people and businesses with them at scale.

Nvidia's investment in OpenAI builds on its $5 billion purchase of stock, announced on Sept. 18. Intel will design and manufacture customer data center and central processing units (CPUs) with Nvidia's NVLink technology, which increases communication speed between GPUs and CPUs.

Nvidia continues to push the bounds of AI computing power, and its results have been astounding, as its data center segment now makes up 88% of total revenue. Nvidia is growing earnings at a rapid pace with no signs of slowing down. But it isn't the only company that's driving the future of data center compute.

Broadcom's custom AI chips are the real deal

Broadcom's custom AI chips (XPUs) are application-specific integrated circuits (ASICs). Unlike GPUs, which are all-purpose workhorses in the data center, Broadcom works with hyperscalers to build custom AI chips to suit their AI workflows.

The strategy is paying off, as Broadcom stock has outperformed Nvidia year-to-date -- hitting an all-time high and knocking on the door of a $2 trillion market cap.

Like Nvidia, which depends on a handful of customers, Broadcom's AI revenue is largely tied to the ramp-up in hyperscaler capital expenditures. Broadcom's AI revenue is expected to reach nearly $20 billion by the end of this fiscal year, compared to $3.8 billion two years ago. So although Broadcom is still magnitudes smaller than Nvidia in terms of AI revenue, it is challenging Nvidia's dominance.

Broadcom's AI chips, paired with its Jericho routers, Tomahawk switches, and other associated infrastructure, enable the connection of over 1 million XPU clusters across multiple data centers. At scale, Broadcom's custom chip economics improve dramatically because they are more energy efficient than general-purpose GPUs.

Nvidia and Broadcom can win together

Broadcom will likely play an increasingly important role in the data center, but it won't replace Nvidia. Rather, both companies will likely work together, with Broadcom specializing in task-specific functions and Nvidia leading in versatile compute for AI training, inference, and high-performance computing.

The latest flurry of announcements showcases how both companies are positioned to thrive. In its latest earnings report from early September, Broadcom announced a $10 billion custom AI chip customer -- which is likely OpenAI. But OpenAI is also closely collaborating with Nvidia, serving as the key driver of its path to 10 GW in datacenter capacity.

A hyperscaler like OpenAI may partner with Broadcom on custom AI chips for specific tasks, but these chips take a while to develop and are best for inference (handling the needs of existing AI models with fixed patterns). Whereas Nvidia's GPUs -- paired with its CUDA software system -- are a solution that works right now and is more flexible for variable and complex scenarios, like training models with new parameters.

OpenAI is also likely reducing its dependence on one chip supplier, similar to how it has expanded its cloud partnership beyondto include Oracle in a blockbuster $300 billion deal. Spreading business across multiple vendors reduces OpenAI's supply chain risk.

Nvidia remains a top growth stock to buy now

Nvidia remains the Gold standard in the data center. It can thrive alongside Broadcom, so investors shouldn't view the two companies purely as competitors, but rather, as examples of the evolving anatomy of the modern AI data center.

At 39.7 times forward earnings, Nvidia is far from cheap, but it also isn't as expensive as it used to be. Especially given that it is still growing earnings at a rapid rate.

In fact, on a forward-earnings basis, Nvidia is cheaper than other Ten Titans stocks like, Broadcom, Netflix, and Oracle. And it's a much better buy for growth investors than a stock like, which trades at 34.5 times forward earnings but is growing earnings far more slowly than Nvidia.

All told, Nvidia remains a foundational AI growth stock to buy now. Although investors may want to consider incorporating both Nvidia and Broadcom into their long-term AI portfolios.