AMD's chip deals with OpenAI and Meta result in a $1 billion expense this quarter

Max A. Cherney

Reuters, San Francisco, November 4 - Advanced Micro Devices (AMD) AMD.O has adopted a strategy of offering shares in its future success to major AI clients OpenAI and Meta Platforms META.O in exchange for large-scale chip purchase commitments—a strategy that is beginning to significantly impact its profits.

In February this year, AMD agreed to sell up to $60 billion worth of AI chips to Meta over five years (link), and granted the Facebook parent company warrants that would allow Meta to purchase up to 10% of the chipmaker’s equity upon reaching specified milestones. Previously, AMD had entered a similar agreement with OpenAI (link), giving the startup the option to acquire about 10% of the chip manufacturer.

On Tuesday, AMD reported that in the third quarter ending September 26 (link), as shipments under these agreements began to increase, the company recorded $1.07 billion in non-cash expenses (equivalent to 66 cents per share) to reflect the impact of these warrants.

Driven by surging data center sales, the chipmaker forecast faster-than-expected growth in 2027 (link), pushing its share price up 8% in after-hours trading and also boosting shares of Intel INTC.O, Nvidia NVDA.O, and Broadcom AVGO.O.

These warrants are part of an increasingly common equity incentive arrangement used by chip and AI cloud companies to secure large-scale, long-term purchase orders from a handful of AI customers, while highlighting the cyclical nature of the AI boom—in which companies can be each other’s customers, suppliers, and investors at the same time.

This strategy also has the potential to dilute AMD shareholders' equity. If the warrants fully vest and are exercised, OpenAI and Meta could each obtain a substantial stake in the chipmaker for just one cent per share, which could significantly increase AMD’s total shares outstanding. The ultimate value of the warrants will depend on AMD’s share price at the time of exercise.

The OpenAI warrants include an AMD share price threshold clause, while Meta’s warrants do not.

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Analysts say that while this is a major vote of confidence in AMD’s artificial intelligence chips and software, it is unlikely to upset Nvidia’s dominant position, as the market leader still sells every AI chip it can manufacture.

"While I do think incentives played a role in some of the sales, I think the more critical issue is there’s a huge pent-up demand for alternatives to Nvidia in the market, and AMD’s products are now beginning to compete on cost-efficiency," said Bob O'Donnell, chief analyst at TECHnalysis Research.

AMD has also entered into a chip purchase agreement with OpenAI’s competitor Anthropic, but that deal includes an investment commitment from AMD to Anthropic.

AMD CFO Jean Hu said in Tuesday’s analyst call that once OpenAI and Meta meet the exercise conditions—including delivery and other commercial requirements—these warrants will begin to dilute AMD shareholders’ equity. She said AMD expects to provide more guidance in 2027 on when these conditions may be met.

Other AI chip and infrastructure companies have also reached similar equity-linked deals with major customers. Chip startup Cerebras CBRS.O granted warrants to OpenAI (link) in exchange for $20 billion in commitments; Marvell MRVL.O granted Alphabet's Google GOOGL.O warrants giving the search giant the right to purchase up to $12.2 billion worth of shares (link).

Qualcomm granted Amazon warrants in a $60 billion AI data center chip deal (link).

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