Nvidia's cash investment in OpenAI is primarily deployed to lease Nvidia chips rather than other capex.

Nvidia's massive investment in OpenAI, announced earlier this week, will put billions of dollars into the coffers of the artificial intelligence startup to use as it sees fit. The agreement between the two companies was big on numbers but thin on specifics, with the investment reaching up to $100 billion, paid out as AI supercomputing facilities open in the coming years, with the first one coming online in the second half of 2026. What has become clear is that OpenAI plans to pay for Nvidia's graphics processing units (GPUs) through lease arrangements, rather than upfront purchases, according to people familiar with the matter.

Nvidia CEO Jensen Huang, who described this week's deal as "monumental in size," has estimated that an AI data center with a gigawatt of capacity costs roughly $50 billion, with $35 billion of that used to pay for Nvidia's GPUs. By leasing the processors, OpenAI can spread its costs out over the useful life of the GPUs, which could be up to five years, leaving Nvidia to bear more of the risk. Nvidia agreed to invest over time as OpenAI's data centers get up and running, with the initial $10 billion available to OpenAI soon to help the company work towards deploying its first gigawatt of capacity.

While Nvidia's equity investment could help OpenAI with hiring, marketing and operations, the biggest single item it will be used for is compute, directed almost entirely at Nvidia's GPUs. As a non-investment-grade startup that lacks positive cash flow, OpenAI executives have called equity the most expensive way to fund data centers and said the company is preparing to take on debt to cover the remainder of the expansion. In addition to offering a cost-efficient way for OpenAI to access chips, Nvidia's lease option and long-term commitment can help the company land better terms from banks when it comes to raising debt.

Speaking from Abilene, Texas, OpenAI CFO Sarah Friar pointed to the role Oracle and Nvidia are playing in the financing: "Folks like Oracle are putting their balance sheets to work to create these incredible data centers you see behind us. In Nvidia's case, they're putting together some equity to get it jumpstarted, but importantly, they will get paid for all those chips as those chips get deployed." Friar said all the big partners are needed to help relieve a dramatic shortage of capacity, noting that "there's not enough compute."

The deal has raised concerns about the sustainability of the AI boom. Jamie Zakalik, an analyst at Neuberger Berman, said the Nvidia deal is the latest example of OpenAI raising money that it pours right back into the company providing the capital, with investors concerned about the "circular nature of this deal goosing up everyone's earnings and everyone's numbers" but "not actually creating anything." In response, OpenAI CEO Sam Altman told CNBC the company is focused on driving real demand: "We need to keep selling services to consumers and businesses — and building these great new products that people pay us a lot of money for. As long as that keeps happening, that pays for a lot of these data centers, a lot of chips."