Correction - Revisited Article - Chip deals between AMD and OpenAI, Meta resulted in a one-billion-dollar expense in a single quarter

Correction to paragraph 7, clarifies that the warrants issued to both companies (not just to OpenAI) have set share price thresholds.

Max A. Cherney

Reuters San Francisco, November 4 - Advanced Micro Devices (AMD) AMD.O has adopted a strategy of offering a stake in its future success to key AI customers OpenAI and Meta Platforms META.O in exchange for large-scale chip purchase commitments, and this strategy is now beginning to have a significant impact on 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—allowing Meta to purchase up to 10% of the chip maker’s shares upon achieving certain milestones. Previously, AMD had reached a similar agreement with OpenAI (link) last year, granting the startup warrants to purchase about 10% of the chip manufacturer’s shares.

On Tuesday, AMD stated that in the third quarter ending September 26 (link), as shipments under related contracts began to increase, the company booked $1.07 billion in non-cash expenses (equal to $0.66 per share) to reflect the impact of these warrants.

Thanks to a surge in data center revenue, the chip maker forecasts faster than expected growth in 2027 (link), causing its stock to rise 8% in after-hours trading, and lifting Intel INTC.O, Nvidia NVDA.O, and Broadcom AVGO.O as well.

These warrants are part of an increasingly common practice among chip makers and AI cloud companies to use equity incentives, aimed at securing large-scale, long-term purchase orders from a select group of AI customers. This also highlights the cyclical nature of the AI boom, where companies can simultaneously be customers, suppliers, and investors to each other.

This strategy could also dilute AMD shareholder equity. If the warrants are fully vested and exercised, OpenAI and Meta could hold significant stakes in the chip maker at only $0.01 per share, possibly causing a considerable increase in AMD’s outstanding share count. The ultimate value of the warrants depends on AMD’s share price upon exercise.

These warrants include specific AMD share price thresholds.

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Analysts said that while this serves as a major vote of confidence for AMD’s AI chips and software, it is unlikely to unseat Nvidia’s dominance, as the market leader continues to sell out every AI chip it makes.

“While I think these incentives really played a role in some of the sales, I believe the bigger issue is the substantial pent-up demand for alternatives to Nvidia, and AMD’s product is now starting to compete on price-performance,” said Bob O’Donnell, chief analyst at TECHnalysis Research.

AMD has also reached a chip procurement agreement with OpenAI’s rival Anthropic, though that agreement includes an AMD investment commitment in Anthropic.

AMD CFO Jean Hu stated on Tuesday’s analyst call that once OpenAI and Meta meet vesting and exercise conditions (including shipments and other commercial requirements), the warrants will begin to dilute AMD shareholder equity. She said AMD expects to provide further guidance in 2027 as to when these conditions may be met.

Other AI chip and infrastructure companies have similarly entered equity-linked deals with major customers. Chip startup Cerebras CBRS.O granted OpenAI warrants (link) in exchange for a $20 billion commitment; Marvell MRVL.O issued warrants to Alphabet’s Google GOOGL.O, allowing the search giant to acquire up to $12.2 billion worth of shares (link).

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

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