Sam Altman's OpenAI Set To Finalize In-House AI Chip, Reducing Dependence On Nvidia: Report Open AI Aims To Reduce Dependency On NVIDIA. Advances Towards In-House AI Chip Designing - Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META)

Sam Altman-led OpenAI is almost ready to finalize the design for its first proprietary artificial intelligence (AI) chip. This development could reduce the company’s reliance on Nvidia NVDA and enhance its bargaining power with other chip suppliers.

What Happened: OpenAI is making headway in its endeavor to create its first in-house AI silicon. The company is expected to submit its design to Taiwan Semiconductor Manufacturing Co TSM for fabrication in the upcoming months, a step known as “taping out”, as per a Reuters report released today.

OpenAI is on track to achieve its ambitious goal of mass production at TSMC by 2026. However, the process is costly and time-consuming, with no guarantee of success on the first attempt. In the event of a failure, the company would have to identify the problem and send out the chip design again.

This large-scale program may cost $500 million for a single-chip version. However, the costs could potentially double based on the required software and peripherals.

The in-house AI chip, developed by a team at OpenAI led by Richard Ho, is considered a strategic asset within the company. Despite the hurdles encountered by tech behemoths like Microsoft Corporation MSFT and Meta Platforms Inc. META in producing satisfactory chips, OpenAI’s rapid progress on its first design underscores the startup’s potential in the chip design sector.

The engineers at OpenAI strive to develop increasingly advanced processors with each new version. If the initial tape-out proves successful, it could enable the company to mass-produce its first proprietary AI chip and potentially consider an alternative to Nvidia’s chips later this year.

Why It Matters: Nvidia's chips currently dominate the market, holding nearly 80% share, allowing it to command the industry pricing. However, reliance on a single supplier and escalating costs have prompted major companies like Microsoft, Meta, and OpenAI to seek in-house or external alternatives to Nvidia's chips.

Also, DeepSeek’s rise as an AI competitor, leveraging cost-effective, lower-end chips has raised questions about the tech sector’s dependence on Nvidia products.

OpenAI’s move towards producing its own AI silicon is a significant step in reducing its dependency on Nvidia. This development comes amid shifts in semiconductor dynamics and could potentially disrupt the chip supply chain.

OpenAI is also involved in the $500 billion Stargate infrastructure initiative, backed by U.S. President Donald Trump. Reports suggest that the ChatGPT-maker is searching across the U.S. for locations to establish a network of massive data centers to support its artificial intelligence technology. In addition to its flagship site in Texas, the company is exploring options in 16 states to advance the Stargate project.