AMD's AI Chip Deals With OpenAI and Meta Trigger $1B Charge, Lifting Shares
AMD's Strategic AI Partnerships and Financial Impact
By Max A. Cherney
Major AI Chip Commitments and Equity Incentives
SAN FRANCISCO, Nov 3 (Reuters) - Advanced Micro Devices' strategy of offering stakes in its future success to major AI customers OpenAI and Meta Platforms in exchange for big chip commitments is beginning to leave a sizeable imprint on its profits.
Details of the Meta and OpenAI Deals
AMD in February agreed to sell up to $60 billion worth of AI chips to Meta over five years, giving the Facebook owner warrants that could let it buy as much as 10% of the chip firm if it meets certain milestones. The deal followed a similar agreement with OpenAI last year, giving the startup the option to buy up to roughly 10% of the chipmaker.
Financial Consequences and Market Reaction
On Tuesday, AMD said it recorded a $1.07 billion non-cash charge, or 66 cents a share, in the third quarter ended September 26 to account for these warrants, as shipments under the agreements begin to ramp up.
The chipmaker forecast faster-than-expected 2027 growth thanks to surging data-center sales, sending its shares up 8% in extended trading and pushing up stocks of Intel, Nvidia and Broadcom.
Risks and Industry Implications
Shareholder Dilution and Warrant Details
The warrants are part of a growing use of equity incentives by chip and AI cloud companies to secure massive, long-term purchases from a small group of AI customers, and highlight the circular nature of the AI boom, where companies can simultaneously be customers, suppliers and investors in one another.
The strategy also risks diluting AMD shareholders. OpenAI and Meta could own a large stake in the chipmaker for as little as a penny apiece if the warrants fully vest and are exercised, potentially increasing AMD's share count substantially. The warrants' ultimate value depends on AMD's share price when they are exercised.
OpenAI's warrant also includes AMD share-price thresholds, while Meta's does not.
Market Position and Analyst Perspectives
Analysts said it was a major vote of confidence in AMD's AI chips and software but is unlikely to dent Nvidia's dominance, as the market leader continues to sell every AI chip it can make.
Expert Commentary
"While I do believe incentives played a role in some of their sales, I believe the bigger issue is that there is pent-up demand for a serious alternative to Nvidia and AMD’s products are now starting to compete on price/performance metrics," TECHnalysis Research chief analyst Bob O'Donnell said.
Other Equity-Linked Deals in the AI Industry
AMD's Additional Partnerships
AMD has also struck a chip-purchase arrangement with OpenAI rival Anthropic, but that agreement included a commitment by AMD to invest in Anthropic.
Future Guidance and Shareholder Impact
AMD finance chief Jean Hu said on Tuesday's analyst call that the warrants would begin diluting AMD shareholders once OpenAI and Meta satisfy the vesting and exercise conditions, which include shipment and other commercial requirements. AMD expects to provide more guidance in 2027 on when those conditions could be met, she said.
Industry-Wide Trends
Other AI chip and infrastructure companies have struck similar equity-linked deals with major customers. Chip startup Cerebras granted OpenAI warrants against a $20 billion commitment, while Marvell has issued Alphabet's Google warrants that give the search giant the right to buy a potential $12.2 billion stake.
Qualcomm gave Amazon warrants in a $60 billion deal for its AI data-center chips.
(Reporting by Max A. Cherney in San Francisco; Additional reporting by Anhata Rooprai in Bengaluru; Editing by Sayantani Ghosh and Rashmi Aich)
