The cycle of colossal capex spending, driven by OpenAI, is one of the year’s biggest market trends, and it’s one that Bank of America thinks could ultimately lead to trouble for mega-cap tech giants
The investment bank recently highlighted a paradox: while AI hyperscalers are rushing to ink deals with OpenAI, they are also locked in competition with the ChatGPT maker.
Commentators have puzzled over how long and how far the OpenAI spending spree can run, particularly as the company is committing more money than it is projected to generate. However, BofA’s Justin Post says it may end up causing more problems for major tech firms that are signing deals with OpenAI.
Posted said that investors should consider the bigger picture as OpenAI reshapes the broader tech landscape.
“The strategic risk is two-sided,” he said. “If OpenAI succeeds, it becomes a bigger competitive threat; but if the company underachieves internal targets, it may under-utilize its contracted compute, contributing to excess capacity and lower Cloud industry revenues.”
Post added that OpenAI has signed large-scale deals with Microsoft, Google, Amazon Web Services, and Oracle, among others.
“We think the rational for adding OpenAI as a cloud customer could be threefold: 1) important to drive Cloud AI scale, and OpenAI would be able to find capacity elsewhere, 2) potential for deeper partnerships to bring OpenAI’s frontier models onto Cloud platforms (though Microsoft deal dependent), 3) will be manageable exposure at less than 10% of total Cloud revs,” Post said.
However, he added that the company will continue to grow and eventually become a competitive threat to mega-cap tech firms in both enterprise and consumer markets.
This includes expanding into areas such as advertising and agentic transaction platforms that can complete tasks and make purchases for users.
However, these hyperscalers aren’t the only tech companies that could be at risk as the startup continues to expand. BofA also thinks OpenAI will compete for marketing and advertising spend in the near future, negatively impacting giants like Meta Platforms and YouTube.
“All in, OpenAI is targeting $41bn in new product revenue by 2030 which likely includes advertising and eCommerce commissions, which would represent roughly 8% of our 2030 advertising/eCommerce commission industry forecasts,” Post added.
Despite the benefit that partnering with OpenAI has provided for these companies in the short term, such as a quick stock surge, BofA remains convinced that the ChatGPT maker should be seen as a threat to big tech hyperscalers.
“Weighing the pros and cons, we still view OpenAI as a net competitive threat to Big Tech Internet, with the competitive risk across search, eCommerce, and enterprise AI outweighing modest cloud revenue risk (OpenAI less than 5% of AWS revs),” Post noted.
