Correction - Chip deals between AMD and OpenAI, Meta have led to a $1 billion expense booked in this quarter

Correction to paragraph 7, clarifying that warrants issued to both companies (not just OpenAI) are subject to a share price threshold.

Max A. Cherney

Reuters San Francisco, November 4 - Advanced Micro Devices (AMD) AMD.O is pursuing a strategy of offering shares of future profits to its main AI customers OpenAI and Meta Platforms META.O in exchange for large-scale chip purchase commitments, a strategy that is 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; upon reaching certain milestones, Meta can use them to buy up to 10% of the chipmaker’s stock. Previously, AMD had entered into a similar agreement with OpenAI (link) last year, granting the startup options to purchase about 10% of the chip company’s shares.

On Tuesday, AMD reported that in the third quarter ending September 26 (link), due to increased shipments under the related agreements, the company recorded a $1.07 billion non-cash expense (about $0.66 per share) to reflect the impact of these warrants.

Thanks to surging data center sales, the chipmaker projected faster-than-expected growth in 2027 (link), lifting its shares by 8% in after-hours trading and also boosting Intel INTC.O, Nvidia NVDA.O, and Broadcom AVGO.O.

These warrants are part of an increasingly common equity incentive practice among chip and AI cloud companies, aimed at securing large, long-term purchase orders from a select group of AI customers. They also highlight the cyclical nature of the AI boom—where companies can simultaneously act as each other's customers, suppliers, and investors.

This strategy may also dilute AMD shareholders' equity. If the warrants are fully vested and exercised, OpenAI and Meta could hold a large stake in the chipmaker for just $0.01 per share, potentially significantly increasing the number of AMD shares outstanding. The ultimate value of the warrants depends on AMD’s share price at the time of exercise.

These warrants set thresholds for AMD’s share price.

https://www.reuters.com/graphics/AMD-RESULTS/STOCK/jnpwodqezpw/chart.png

Analysts say that while this is a significant vote of confidence in AMD’s AI chips and software, it is unlikely to challenge Nvidia’s dominance, as the market leader continues to sell every AI chip it makes.

“While I believe incentives do play a role in some sales, I think the more critical issue is the significant pent-up demand in the market for alternatives to Nvidia, and AMD’s products are now beginning to compete more on value,” said TECHnalysis Research chief analyst Bob O'Donnell.

AMD has also reached a chip purchase agreement with OpenAI rival Anthropic, but that deal includes AMD’s commitment to invest in Anthropic.

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

Other AI chip and infrastructure companies have also struck similar equity-linked deals with key clients. Chip startup Cerebras CBRS.O granted OpenAI warrants (link) in exchange for a $20 billion investment commitment; Marvell MRVL.O issued warrants to Alphabet’s Google GOOGL.O, giving the search giant the right to purchase up to $12.2 billion worth of shares (link).

Qualcomm, in a $60 billion deal selling its AI data center chips, granted warrants to Amazon (link).

(To facilitate non-native English speakers, Reuters has automated the translation of its reports into several other languages. As automated translations may contain errors or lack necessary context, Reuters does not guarantee the accuracy of the translated text and provides it only to assist readers. Reuters accepts no responsibility for any loss or damage arising from the use of automated translation functions.)