Wall Street analysts explain how AMD’s own stock will pay for OpenAI’s billions in chip purchases

A groundbreaking partnership has emerged between AMD and OpenAI, with discussions quickly focusing on a novel approach for OpenAI to fund its substantial chip purchases. Instead of traditional cash payments, OpenAI plans to utilize AMD's own stock to settle its bills. Under the terms of this ambitious agreement, OpenAI will assist AMD in enhancing its competitor chips to Nvidia, specifically the Instinct GPUs. Additionally, OpenAI will acquire and implement a massive 6 gigawatts of computing capacity from AMD over several years, a deal projected to generate billions in revenue for AMD. What sets this deal apart is the method of payment. AMD has awarded OpenAI a substantial number of stock warrants—up to 160 million shares—that will vest in stages as OpenAI meets specific milestones. These milestones are tied to increases in AMD's stock price, with the final tranche contingent on the share price reaching an impressive $600 million each, according to AMD's disclosures. Following the announcement, AMD's shares jumped from around $165 to $214 by the end of the trading day. If OpenAI successfully achieves its targets and retains all its AMD shares without selling, the value of these stocks could potentially reach around $100 billion. UBS analyst Timothy Arcuri noted in a recent report that the final tranche requires AMD to reach a market cap of approximately $1 trillion for the warrants to vest. However, Arcuri suggests that it’s more likely OpenAI will liquidate some of its AMD stock along the way to cover its costs. This unconventional arrangement essentially allows AMD to finance OpenAI's purchases, providing a crucial validation of AMD's AI GPUs' capabilities to handle demanding workloads. Arcuri emphasized that this agreement could spark increased adoption of AMD products, particularly since OpenAI's endorsement may facilitate AMD’s sales to existing cloud service providers already using its CPUs. In the broader landscape, Nvidia has also been financing OpenAI's procurement of its chips through a significant $100 billion investment made last month, which has resulted in Nvidia acquiring a stake in the rapidly growing AI firm. In contrast, AMD's deal is viewed as a strategic move to secure a substantial position—potentially up to 30% market share—within one of the largest expansions of next-generation data centers ever witnessed. While some may argue that AMD's deal is less enticing than Nvidia's, it remains a crucial affirmation of AMD's roadmap and could lead to new opportunities with other clients in the future.