AMD's OpenAI, Meta chip deals trigger $1 billion quarterly charge

Advanced Micro Devices (AMD) is facing a significant financial impact following its agreements with major AI customers, OpenAI and Meta Platforms, to supply AI chips. In exchange for these commitments, AMD granted warrants to OpenAI and Meta, which could provide them with the option to purchase up to 10% of the chipmaker. These warrants were included in AMD's strategic move to secure long-term purchases from AI cloud companies, a trend that is becoming increasingly common in the chip industry.

AMD recorded a non-cash charge of $1.07 billion, or 66 cents per share, in the third quarter, accounting for the value of these warrants. The chipmaker expects faster-than-anticipated growth in 2027 due to increased data-center sales, which has boosted AMD's stock price by 8% in extended trading. This strategy of providing equity incentives to key AI customers highlights the interconnected nature of the AI boom, where companies act as customers, suppliers, and investors in one another.

However, this approach also poses a risk to AMD shareholders. If the warrants fully vest and are exercised, OpenAI and Meta could become significant owners of the chipmaker, potentially increasing the number of AMD shares outstanding substantially. The ultimate value of the warrants depends on AMD's share price when they are exercised, making their impact on the company's financials uncertain.