Nvidia (NVDA) Stock: Elon Musk’s xAI Drops $20 Billion on GPU Order

TLDR

• xAI and Nvidia are reportedly signing a $20 billion deal for GPUs to support the Memphis Colossus 2 data center expansion
• Nvidia projects global data center capital expenditures will reach $600 billion by end of 2025, rising to $3-4 trillion by 2030
• OpenAI recently announced a partnership with Nvidia for 10 gigawatts of compute capacity with up to $100 billion in investment
• Wall Street analysts expect 33% revenue growth for Nvidia’s FY 2027, though the company has consistently exceeded expectations
• Microsoft, Alphabet, and Amazon are estimated to generate $25-30 billion annually from AI customers in their cloud businesses

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Elon Musk’s xAI is reportedly signing a $20 billion deal with Nvidia to supply GPUs for its Memphis Colossus 2 data center. The deal represents another major win for Nvidia as competition in the AI chip market intensifies.

NVIDIA Corporation, NVDA

The $20 billion figure sounds massive, but it’s actually smaller than you might think when you break it down. Nvidia’s data center revenue hit $41.1 billion in Q2 alone.

xAI won’t be spending all $20 billion in a single quarter. The deal will be spread across multiple quarters, adding just a few percentage points to Nvidia’s growth each period.

What matters more is what this deal represents. xAI chose Nvidia over competitors like AMD and Broadcom, both of which recently landed deals with OpenAI.

AMD competes directly with Nvidia using its own GPU design. Broadcom takes a different approach by designing custom chips in collaboration with end users.

These custom chips are cheaper and more powerful for specific tasks but lack flexibility. Despite these competitive offerings, xAI went with Nvidia.

OpenAI Still Banking on Nvidia

OpenAI announced deals with Broadcom and AMD in recent weeks. But the ChatGPT maker hasn’t abandoned Nvidia.

The two companies announced a partnership in September. Nvidia will provide 10 gigawatts of compute capacity in exchange for up to $100 billion in OpenAI investment.

Some worry this creates a circular economy where money just cycles between partners. But OpenAI’s subscriber numbers keep growing at an incredible pace, making this a legitimate business arrangement.

These deals back up a major claim Nvidia made during its Q2 conference call. CEO Jensen Huang stated that global data center capital expenditures will reach $600 billion by the end of 2025.

He expects that figure to climb to $3-4 trillion by 2030. If accurate, this means AI spending will grow at a compounded annual rate of 42% over the next five years.

Big Tech Earnings Hold the Key

Nvidia shares have traded sideways since August. The stock was up 0.1% in premarket trading on Wednesday after falling 0.8% the previous day.

The next catalyst comes next week when Microsoft, Alphabet, and Amazon report earnings. Investors want to see proof these companies can handle the power and logistical requirements of building massive AI data centers.

UBS analyst Karl Keirstead estimates the three companies are generating $25-30 billion annually from AI customers in their cloud computing businesses. He said monitoring big AI data center builds will become crucial for forecasting revenue.

Wall Street Keeps Underestimating Growth

Wall Street analysts expect 33% revenue growth for Nvidia’s FY 2027, which ends in January 2027. But analysts have consistently underestimated Nvidia’s growth in the past.

If Nvidia can deliver revenue growth above 40% again in 2026, the stock looks undervalued. Shares currently trade at 28 times next year’s earnings.

Should Nvidia maintain a 40% growth rate over the next five years, today’s price will look cheap in hindsight. Keirstead noted that demand for compute from model providers is so intense that it almost doesn’t matter that enterprise AI spending remains in early stages.

The $20 billion xAI deal and the OpenAI partnership cement Nvidia’s position as the top choice for building AI models. The stock has fallen 0.8% but remains positioned for future gains as AI infrastructure spending accelerates through the rest of the decade.

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