On Monday, AMD and OpenAI announced an expanded partnership. The agreement states that OpenAI will help AMD refine its line of Instinct GPUs, which compete with Nvidia’s chips. OpenAI has also committed to purchasing and deploying 6 gigawatts of compute capacity from AMD over multiple years. AMD said this deal is worth tens of billions in revenue.
The unusual aspect of the deal is how OpenAI will pay for its AMD purchases. Instead of using its own revenue, OpenAI will pay with AMD’s own stock. AMD has granted OpenAI a large number of stock warrants, up to 160 million AMD shares. These warrants will vest in stages as certain milestones are met. Those milestones include specific increases in AMD’s stock price, with the final tranche requiring shares to reach $600 each. Before the news, AMD shares were trading at about $165. After the announcement, the stock price soared to $214 by market close on Monday.
If the stock price hits all its targets and OpenAI fulfills all its required contributions, and if OpenAI holds all the shares without selling any, the company could make enough on the AMD stock to pay for a significant number of GPUs. The stock could be worth about $100 billion. UBS analyst Timothy Arcuri noted that the final tranche requires AMD to reach nearly a one trillion dollar market cap, which would make OpenAI’s stake worth approximately $100 billion.
However, Arcuri believes a more likely scenario is that OpenAI will sell its AMD stock along the way to pay its bill to AMD. This arrangement essentially allows AMD to finance its own customer’s purchases. The analyst argues that the validation of AMD’s AI GPUs being able to handle OpenAI’s workloads, and therefore any other AI workloads, is valuable enough for AMD to make this financing move. AMD highlighted ongoing customer discussions beyond OpenAI and expects this agreement to accelerate the adoption of its technology.
In the long run, retail and institutional investors could ultimately be the ones paying for OpenAI’s multi-year purchase of AMD GPUs if they continue to bid the stock price higher.
This deal shares some similarities with recent news about Nvidia. Last month, Nvidia announced a plan to invest up to $100 billion in OpenAI. The key difference is that Nvidia’s investment gives it a stake in the fast-growing AI provider, whereas the AMD deal gives OpenAI a stake in the chipmaker.
For AMD, this financially engineered deal, which costs OpenAI very little upfront, provides a significant foothold into one of the largest next-generation data center build-outs the world has ever seen. UBS estimates AMD could gain as much as 30 percent market share from this. While Arcuri admits that AMD’s deal is arguably less attractive than Nvidia’s, he sees it as a major validation of AMD’s roadmap that could snowball to other customers.