OpenAI’s CEO Sam Altman survived an attempt to oust him as the AI company’s chief. Now, the maverick wants to establish his own chip-making factories.
Altman’s intent, which was reported by Bloomberg, is to build a network of factories to produce AI chips.
OpenAI may already be designing its own AI chips to pair with its large-language models, such as GPT-4, Reuters reported late last year.
Altman is reportedly talking to SoftBank, based in Japan, and G42, based in Abu Dhabi, to raise funds for the AI chip factories. Microsoft, an investor in OpenAI, is also part of the conversations.
The involvement of G42 is intriguing because of the company’s potential ties to China. The US Department of Commerce is investigating G42, which is building AI supercomputers with chips from suppliers Nvidia and Cerebras Systems, about potentially providing China access to its powerful AI infrastructure. The US has banned exports of the latest AI chips from US companies to China.
Designing a chip makes sense, but establishing chip factories is an unprecedented step. OpenAI rivals with their transformer models, including Google and Meta, have their own AI chips but outsource manufacturing to contract fabricators such as TSMC. Intel is taking on manufacturing to be a second-source manufacturer of such chips.
OpenAI’s plan for its chip design can deliver an advantage, but Altman’s plans to manufacture AI chips are much more ambitious. Typically, models used by OpenAI, Google, and Meta don’t work on hardware out of the box. Like operating systems, the models need to be tuned specifically to work quickly and power-efficiently on AI chips. But Google, Meta, and Microsoft just design chips and do not manufacture them.
Microsoft is using OpenAI’s models for its Bing search on Nvidia’s GPUs and is tuning the models for its upcoming Maia 100 AI accelerator, which was introduced in November. The Maia AI accelerator is targeted at inferencing, which is more related to providing answers to queries from customers. Similarly, Google has built its entire AI infrastructure around its TPUs, which also drives the development of future AI models.
OpenAI’s models also rely on Nvidia GPUs, which dominate the AI market. But like Microsoft, Altman wants to cut its reliance on Nvidia and diversify its chip profile.
But Altman is dipping his feet into semiconductor manufacturing, a highly volatile industry that is embroiled in geopolitical intrigue. Altman also believes that demand for AI chips will exceed supply in the coming years, which is why more manufacturing capacity was necessary, the Bloomberg story said.
Altman is also looking to establish a presence in a market that has had more exits than new entrants over the last few decades.
Altman is emerging as a modern-day Steve Jobs, and his reputation is at a peak. He is credited with bringing AI to the masses with ChatGPT. But he has issues – he was temporarily ousted as OpenAI’s CEO for being unclear about the direction of his AI products. He was reinstated as OpenAI’s CEO after a messy battle with the company’s board that played out in public.
But Jobs was smart enough not to make risky investments. In 2008, Apple bought PA Semiconductor – and the talent to build chips for the iPhone and now Mac – and left the manufacturing to third parties. Investing in a chip factory is the riskiest investment for any tech company.
The semiconductor manufacturing industry is also being weaponized by countries as currency to limit trade. The US has banned the export of AI and advanced chip-making equipment to China to choke the country’s AI strategy.
Altman is looking to succeed where China failed. China responded by investing billions in establishing chip factories of its own but hasn’t been successful yet.
The US election is around the corner, and that policy could change if pro-China president Donald Trump takes over. A political change could open a path for US companies to return chip-making to China at a lower cost.
Altman will need piles of cash – far more than what he is seeking – to establish factories. He will need a smart CFO to avoid overinvestment and measure the sustainability of chip demand. Altman will need to figure out if the current demand for chips is just a blip and how to survive the downturn that will come.
In the 1990s, many chip companies had their manufacturing facilities. However, companies such as AMD and Motorola ultimately divested their manufacturing assets because of the volatility and high maintenance costs. Typically, semiconductor demand surges in up-cycles in which manufacturers ramp up manufacturing and flood the market with chips such as CPUs and memory. The demand declines during the downcycle, in which manufacturers scale down production, sell off excess inventory, and leave factories underutilized.
The market has now narrowed to a handful of manufacturers, including Samsung, Texas Instruments, and GlobalFoundries, which spun off from AMD.
Companies such as Nvidia and Apple have seen success in chips through a fabless model in which internal chip designs are sent off to TSMC for fabrication. Intel failed in its old business model in which its factories were used only to make homegrown chips and is establishing a business model that is similar to TSMC.
Companies previously were conservative in investing in new factories, especially when capacity was underutilized, but things have changed in recent years. The investments for design and manufacturing are higher on more sophisticated nodes, which currently stand at about the 3-nm node and are approaching atomic levels.
Last year, the US passed the CHIPS and Science Act, which opens up billions of dollars for companies to establish or upgrade new factories. TSMC and Intel are expected to be recipients of new factories on US soil.
Intel is also investing $20 billion to establish a new advanced node factory in Columbus and is creatively funding new factories. For example, Intel dealt away a 49% stake in its Arizona fab expansions to asset management company Brookfield Asset Management, which is providing $15 billion in capital for the infrastructure upgrades.
But there are positives to an outsider entering chip manufacturing. If Altman decides to start a chip factory, it could bring a fresh approach that breaks decades of old business practices that TSMC, Intel, and Samsung instilled.
Altman could seek a shorter path to success. UAE’s investment fund Mubadala, which has invested in G42, already has a stake in fab company GlobalFoundries and could bring some of that experience to a deal with Altman. SoftBank could leverage a controlling stake in ARM, which went public last year.