Nvidia (NASDAQ:NVDA | NVDA Price Prediction) shares caught quite the bid higher when Elon Musk surprisingly announced that his space empire, Space Exploration Technologies (NASDAQ:SPCX), would show loyalty to the great Jensen Huang by going exclusive with Nvidia’s AI chips.
Why the big commitment? To put it simply, Elon Musk said that “they are the best.” And he’s certainly not wrong, especially as the Vera Rubin era looks to change the world once again.
For investors, the big question is: why bother committing to one firm or another for AI chips? Doesn’t it make more sense to leverage rivals against each other for a shot at better prices?
In my view, I think SpaceX’s loyalty could come with some unspoken perks, especially as Nvidia faces intense demand for its latest and greatest. Indeed, it only makes sense to prioritize firms with the deep pockets and loyalty whenever the line starts going out the door.
SpaceX’s Nvidia exclusivity could pay off in a big-time way
In my humble opinion, a simple gesture of loyalty can go a long way. And for SpaceX, it feels like it’s secured a spot at, or at least very close to, the front of the line for the next era of cutting-edge GPUs. Add Nvidia’s support for its orbital AI data center endeavors into the equation, and perhaps the partnership between the two titans in tech is just getting started. At the end of the day, it’s far better to have two of the brightest minds in tech tackling the same problems.
While it was initially shares of Nvidia that shot higher on the news, I do think that the ensuing rally in SpaceX shares was more than warranted. Just like that, the stock is more than $11 above the IPO price of $135 per share. Given the massive bounce off the lows, it feels like SpaceX remains a very dangerous stock to go short, even if the price of admission bakes in a lot — maybe even too much. As the Musk-Huang relationship expands further from here, I do think that both companies stand to benefit greatly.
As for losers of such a deal, Advanced Micro Devices (NASDAQ:AMD) immediately comes to mind. It’s the number-two player in the GPU race, and shares have outperformed Nvidia by leaps and bounds in the past year, more than doubling to a 162% gain, while Nvidia stock rose just 23% (close to a market return).
It’s not great news for Advanced Micro Devices, but Lisa Su need not worry
Of course, Lisa Su’s chip empire is a serious challenger on price. But with a nearly $2 trillion space titan now off the market, Advanced Micro Devices needs to consider its next move, especially if there are more firms that will be willing to make similar commitments to improve relations, gain priority access, and maybe a bit more. If Nvidia can’t keep up with demand, Advanced Micro Devices still stands to post more wins of its own as it marches ever closer to that $1 trillion market cap milestone.
Any way you look at it, SpaceX going exclusive with Nvidia is bad news for Advanced Micro Devices, especially when you consider how much more the space titan could spend on AI hardware, as its CapEx looks to surge further in this unprecedented AI data center buildout.
Personally, I don’t think Advanced Micro Devices needs to force exclusive deals. If anything, concentrating on the value provided in an era where efficiency and ROIs matter, I think, could be the edge that helps Lisa Su’s firm continue to ride higher.
One area where Advanced Micro Devices could gain loyalty, I believe, is via structured equity deals and collaborations within the data center. Naturally, customers are going to want to stick with vendors that have skin in the game.
Of course, Nvidia has a ton of bets across the AI scene, from frontier AI labs to connectivity plays and everything in between. As Advanced Micro Devices looks to put some of its cash to work, I do think it’s bound to follow a similar playbook.
The bottom line
All considered, I think Advanced Micro Devices is not at all in trouble after the latest SpaceX-Nvidia exclusivity announcement. If anything, it makes me even more bullish on Lisa Su’s firm as they look to make the best response. While I could be wrong, I still think Advanced Micro Devices shares will outpace Nvidia for the year ahead.
In my view, the SpaceX exclusivity deal is a subtle jab, not a knockout blow. Not even close.
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