AMD records $1 billion charge for OpenAI and Meta chip deals

The cost of securing big orders

Advanced Micro Devices (AMD) recently reported a $1.07 billion non-cash charge for the third quarter ended September 26. This figure, which equates to 66 cents a share, accounts for warrants provided to major AI customers OpenAI and Meta Platforms. The charge was recorded as shipments under these specific agreements began to ramp up.

These warrants are a key part of a strategy to secure massive, long-term chip purchases from a small group of dominant AI players. By offering these incentives, AMD aims to lock in demand for its AI hardware as it competes against the market leader, Nvidia. This move signals a shift toward using equity as a tool for business development in the high-stakes AI infrastructure race.

The financial impact of these warrants depends heavily on the future share price of AMD. If the warrants are exercised when the stock price is low, it could significantly increase the total share count. AMD finance chief Jean Hu noted that these warrants will begin diluting shareholders once the customers satisfy specific shipment and commercial requirements.

How the chip deals work

The agreement with Meta involves a commitment to purchase up to $60 billion worth of AI chips over a five-year period. In exchange, Meta received warrants that could allow it to buy as much as 10% of AMD if it meets certain milestones. This deal followed a similar arrangement with OpenAI last year, which also granted the startup the option to purchase a stake of about 10% in the chipmaker.

The terms of these warrants vary slightly between the two customers. For example, the OpenAI warrant includes specific AMD share-price thresholds, while the Meta warrant does not. These agreements highlight a circular nature in the AI boom where companies simultaneously act as customers, suppliers, and potential investors in one another.

AMD is also navigating various other types of arrangements with different players in the space. While it struck a purchase deal with Anthropic, that specific agreement included a commitment from AMD to invest in the company. These diverse structures show how chipmakers are tailoring deals to different types of AI rivals and partners.

Market reaction and competition

Following the announcement of the charge and the company's forecast, AMD's shares rose 8% in extended trading. The news also pushed up the stock prices of other major players, including Intel, Nvidia, and Broadcom. AMD expects faster-than-expected growth in 2027, which it attributes to surging sales in the data-center market.

Analysts view these deals as a major vote of confidence in AMD's AI chips and software capabilities. However, some experts believe these incentives alone will not be enough to topple Nvidia's current dominance. The market leader continues to sell every AI chip it can produce, maintaining a strong hold on the industry.

According to TECHnalysis Research chief analyst Bob O'Donnell, the bigger issue is the pent-up demand for a serious alternative to Nvidia. He noted that AMD's products are starting to compete effectively on price and performance metrics. This suggests that while the equity deals are significant, the underlying hardware competition is the primary driver of the market shift.

A broader industry trend

AMD is not the only company using equity-linked deals to secure large-scale AI infrastructure purchases. Several other chip and AI cloud companies have struck similar arrangements with major customers to ensure long-term stability. These deals are becoming a standard way to secure the massive capital required for AI expansion.

For instance, the chip startup Cerebras granted OpenAI warrants in exchange for a $20 billion commitment. Similarly, Marvell issued warrants to Alphabet's Google that permit the search company to acquire a potential $12.2 billion interest in the firm. These examples show a widespread trend of using company ownership as a form of currency for hardware access.

Qualcomm also participated in this trend by providing Amazon with warrants as part of a $60 billion agreement for its AI data-center chips. This pattern suggests that the AI boom is creating a landscape where the most powerful companies are deeply intertwined through ownership and supply chains. As these deals vest, the ownership structure of the leading hardware firms will likely become more complex.