AMD's OpenAI, Meta Chip Deals Trigger $1 Billion Quarterly Charge
Advanced Micro Devices' approach of providing shares in its upcoming success to key AI clients OpenAI and Meta Platforms in return for significant chip agreements is now starting to have a notable impact on its earnings.
In February, AMD consented to provide Meta with AI chips valued at up to $60 billion over a five-year period, granting the Facebook parent company warrants that may enable it to acquire up to 10% of the chip manufacturer if specific milestones are achieved.
The agreement came after a comparable contract with OpenAI last year, allowing the startup to purchase up to about 10% of the chip manufacturer.
AMD reported a non-cash charge of $1.07 billion, equal to 66 cents per share, in the third quarter ending September 26 to reflect these warrants, as shipments under the agreements start to increase.
The chip manufacturer predicted growth in 2027 that exceeds expectations, driven by booming data-center sales, resulting in an 8% increase in its shares during extended trading and lifting the stocks of Intel, Nvidia, and Broadcom.
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The warrants represent an increasing trend of equity incentives used by semiconductor and AI cloud firms to obtain substantial, long-term deals from a limited set of AI clients, illustrating the interconnected dynamics of the AI surge, where businesses can act as customers, suppliers, and investors all at once.
The approach also jeopardizes AMD shareholders. OpenAI and Meta might acquire a significant portion of the chipmaker for just a penny each if the warrants fully vest and are exercised, potentially raising AMD's total shares considerably. The final worth of the warrants is contingent on AMD's stock price at the time they are executed.
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OpenAI's warrant includes thresholds for AMD share prices, whereas Meta's does not.
Analysts indicated that it was a significant show of faith in AMD's AI processors and software, although it is improbable that it will impact Nvidia's supremacy, as the market leader persists in selling all AI chips it is capable of producing.
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"Though I think incentives contributed to some of their sales, I feel the larger concern is that there is a significant demand for a true alternative to Nvidia, and AMD's offerings are beginning to compete on price/performance metrics," stated Bob O'Donnell, chief analyst of TECHnalysis Research.