The past few months have seen the announcement of multi-billion-dollar deals in the artificial intelligence (AI) industry, as companies build the infrastructure necessary to develop technologies.
Earlier this week, OpenAI announced a deal to use Advanced Micro Devices (AMD) chips over multiple years; while Meta Platforms signed a $29 billion financing package for data centres, and Oracle Corp also raised a $38 billion debt package for its infrastructure. Today, there were reports that Nvidia is investing $2 billion in Elon Musk’s xAI.
What do the billion-dollar AI deals signify?
The developments have been met with optimism and scepticism alike. Amid the buzz, there are fears of a “dotcom”-like bubble. We see what the experts feel the various announcements signify for the broader AI industry.
According to Santosh Tiwari, Partner, EY-Parthenon India the deals signify a “supplier diversification” in the AI sector. What does this mean? Rather than depending upon one party, the aim is to ensure that as the scale and the size of the AI-dependent deals and activities grow, the supplies are as wide as possible, he explained.
According to Manpreet Singh Ahuja, Partner and Chief Client and Alliances Officer at PwC India, these partnerships between leading technology players and AI innovators highlight the growing maturity of the ecosystem. “Such collaborations serve as a powerful signal that the industry is moving from experimentation to scaled deployment, which can provide a strong foundation for long-term growth,” he said.
Large ticket investments in AI ‘the new normal’?
Tiwari felt that besides the number of investments, the size of the investments is also growing. When asked about how he sees this evolving, he pointed to various public acquisitions by AMD, Meta and Qualcomm in the AI space as indicators that the trend is on a growth path.
Fidji Simo, OpenAI’s de facto number two, was quoted on October 6 by AFP, saying that the billion-dollar investments in AI infrastructure are not a bubble, but the “new normal”.
“What I am seeing here is a massive investment in computing power, (with) us meeting (this need) for computing power so incredibly badly for a lot of use cases that people want. From that perspective, I really do not see that as a bubble. I see that as a new normal, and I think the world is going to really switch to realizing that computing power is the most strategic resource,” Simo told the agency.
Also on October 7, OpenAI CEO Sam Altman told journalists that the company’s new partnerships aim to strengthen momentum, adding, “You should expect a huge focus from us on really leaning into enterprise.”
The looming fear of a “dotcom” bubble in AI
Here, Tiwari sought to distinguish between dotcom and AI companies, noting that the difference is that AI is spread across multiple sectors and has a value chain (semiconductors, AI applications, generative AI, etc), which gives it some cushion.
“I won’t classify AI as a bubble. Here, the “value chain” is quite longer. You’re talking about semiconductors with companies like Nvidia, you’re talking about the applications like Microsoft’s products, you’ve got various businesses that are utilising it… Dotcom was very pointed and targeted towards money,” he said.
He felt that, apart from the pace of change, the AI industry is no different from any other, which could make the fast-evolving changes a challenge for some.
“However, the pace of the changes is significantly higher than the previous ones. So this is a thing which is constantly evolving, and as we go forward, there will definitely be winners and losers. There will be people who will be able to adapt to this flow and grow pretty well, and there will be people who will, if they can’t transfer, they will take the hit as well,” he added.
Valuations and Profits: Will AI see more players or consolidation?
Nvidia is now among the top 10 tech companies in the world, head-to-head with Apple and Google, in recent months. However, for the sceptics, doubts remain that the impressive valuations may not live up to the hype, or that profits may not come through.
To this, Tiwari was of the opinion that profits will meet investor expectations, but added that it is the technology that drives the speed of generating profits. “You can get the profits, but the success will depend upon how fast this profit comes. The sales cycles, the upgrade cycles for the AIs are extremely fast. So profits definitely are good,” he felt.
He also believes that while the AI space at the moment is “an oligopoly” of sorts, which could create challenges for new entrants, there are still many players who have the money and material to “join the party”.
“I think there is still a space for the new players to come in. Consolidation will certainly happen, but I think it will still take time. I think AI technology will create spaces in which the new players can create their own niches,” he pointed out.
He further noted that each niche — be it semiconductors, search engines, chatbots, etc. — will likely see new players emerge and possibly take over the market. He also pointed to the adaptable applicability of AI across industries (healthcare, fintech, etc). “There is a vast variety of areas and sectors which still have a lot of scope. There is quite a lot of space still left before consolidation starts. AI is not a vertical, it’s a horizontal. This is where the AI advantage is,” he added.
According to Ahuja, the space will see consolidation and acquisitions, as firms across the value chain seek to secure capabilities, talent, and market share in a highly competitive space. “This could help accelerate the build-out of the AI ecosystem but will also redefine competitive dynamics, as access to infrastructure and scale increasingly determine success,” he added.
On a potential hiccup for the industry, Tiwari felt that failure to deliver could have an impact. Giving the example of when DeepSeek’s launch disrupted OpenAI’s — at the time — undisputed run at the top, he noted that negative results could create scepticism.
“There have been some failures and these events create a bit of scepticism about AI. The people who have not jumped on the bandwagon, anybody who was on the fence, will listen to the news and think twice. But, this just proves that you need to be a little bit more careful,” he added.
Future of AI: Is OpenAI set to be the next Google, Microsoft?
Tiwari noted that the nature of the announced AI deals are “a circular economy”, where related companies have deals with each other and are “feeding into each other”. He thus felt that OpenAI taking the place as the next big tech giant is not a done and closed deal.
“I see OpenAI growing. But certainly there is quite a bit of the other market scapes which will grow with it. There is still quite a bit of a new players which are coming into the market,” he said, adding that evolving technologies mean that anyone with their hand on the pulse and the right solution to offer could be a winner.
“The technology cycles will possibly throw new players in. I don’t think we have seen the end of it as yet, the first part of it,” he added.
