Nvidia Stock Drops. It Isn’t the Only Chip Maker With a Big OpenAI Deal.

Nvidia CEO Jensen Huang. The chip maker’s biggest server maker, Foxconn, signaled AI demand remains strong by reporting record third-quarter sales. (I-HWA CHENG/AFP via Getty Images)

Key Points

• Nvidia’s stock fell 1.8% to $184.31 after AMD announced a multibillion-dollar deal with OpenAI for 6 gigawatts of chips.
• Foxconn, Nvidia’s primary server manufacturer, reported record third-quarter revenue of 2.06 trillion New Taiwan dollars, an 11% increase.
• Foxconn’s September revenue surged 14% year-over-year to a record 837.07 billion New Taiwan dollars, driven by AI server shipments.

Nvidia stock was down on Monday after competitor Advanced Micro Devices announced a multibillion-dollar deal with OpenAI that could challenge the Magnificent Seven company’s AI chip dominance.

Nvidia shares dropped 1% to $185.71. The S&P 500 was 0.2% higher.

The stock had been rising in earlier trading. Foxconn , Nvidia’s biggest server maker, signaled that AI demand remains strong by reporting record third-quarter sales.

Created with Highcharts 9.0.1NvidiaSource: FactSetAs of Oct. 6

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Taiwan’s Foxconn, officially called Hon Hai Precision Industry, said its third-quarter revenue had jumped 11% from a year ago to a record 2.06 trillion New Taiwan dollars ($67.4 billion). Analysts polled by FactSet were expecting NT$2.10 trillion.

Foxconn touted “significant growth” in AI server shipments in September, when revenue surged 14% from a year ago to a record NT$837.07 billion. That’s a good sign for Nvidia, which has seen demand for its chips surge ever since the launch of ChatGPT in late 2022 set off an AI investing boom.

Shares reversed course after OpenAI and AMD announced a huge computing deal in which OpenAI has committed to purchasing 6 gigawatts worth of AMD’s chips. AMD stock soared 32% on the news.

It’s a sign that Nvidia’s position as Big Tech’s go-to chip supplier could be under threat. Google and Amazon have started making their own chips in recent years and OpenAI also recently signed a $10 billion deal with Broadcom .

Still, most analysts remain optimistic about Nvidia’s stock. Of the 66 surveyed by FactSet, 60 say Buy, five say Hold and one says Sell.

Melius Research’s Ben Reitzes is one who rates the stock a Buy. On Monday, he raised his price target to $275 from $240—confident that Nvidia will keep growing over the next few years because of spending on AI infrastructure.

“OpenAI is scaring all the hyperscalers into spending in order to achieve ‘digital superintelligence,’ he wrote. “Other than Nvidia and Apple, others in the Mag 7 cannot let Sam Altman win by spending more, not even Microsoft.”

Reitzes added that OpenAI’s plans to spend over $1 trillion in infrastructure will spur AI spending by other tech companies, “pushing AI compute and networking TAM [total addressable market] to over $2T by 2030.”

“If the TAM is close to that size, it’s hard to envision scenarios where Nvidia doesn’t get 40%+ of that figure,” he said.

Write to George Glover at george.glover@dowjones.com and Angela Palumbo at angela.palumbo@dowjones.com