After AMD and OpenAI announced an expanded partnership on Monday, the chatter immediately turned to the unusual way OpenAI would pay for its AMD purchases. It will use AMD’s own stock to do so.
To recap: OpenAI has agreed to help AMD refine its line of Nvidia competitor chips, the Instinct GPUs, as well as to purchase and deploy 6 gigawatts of compute capacity from AMD over multiple years. AMD said this deal is worth billions in revenue.
But OpenAI isn’t paying for this out of its own revenues. Instead AMD has granted OpenAI a boatload of stock warrants — up to 160 million AMD shares — which will vest in tranches as certain milestones are achieved. Those milestones include specific increases in the stock price, with the last tranche dependent on AMD shares soaring to $600 apiece, AMD disclosed. They were trading at about $165 before the news hit and soared to $214 by market close Monday after the announcement.
If the stock price hits its marks, and OpenAI achieves all its required contributions, and OpenAI holds all of AMD’s shares, not selling any along the way, OpenAI may make enough on AMD stock to pay for a lot of GPUs. The stock could be worth about $100 billion.
“We would note that the final 6th tranche requires ~$1T market cap to vest – ergo, if OAI were to hold stock until the end of the deal, its stake would be worth ~$100B,” writes UBS analyst Timothy Arcuri in a research note on Tuesday.
But Arcuri believes that a more likely scenario is that OpenAI will sell its AMD stock along the way to pay its AMD bill. So, essentially, this is a scheme for AMD to finance this customer’s purchases.
Still, Arcuri argues, the validation that AMD’s AI GPUs can handle OpenAI workloads, and ergo any other AI workloads, is valuable enough for AMD to make this financing gambit. “AMD highlighted ongoing customer dialogs beyond OpenAI and expects this agreement to ultimately accelerate AMD adoption momentum,” he writes. In particular, OpenAI’s stamp of approval gives it an in to sell its GPUs to the many cloud service providers it already provides with CPUs.
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So in the long run, the ones who will truly be paying for OpenAI’s giant multi-year purchase of AMD GPUs will be retail and institutional investors if they do indeed bid the stock price up.
In many ways Nvidia is also financing OpenAI’s purchases of Nvidia’s wares with its own $100 billion investment announced last month. The difference, of course, is that Nvidia’s multiple investments in OpenAI has granted Nvidia a stake in the fast-growing AI provider, not the other way around.
But what choice did AMD have? By financially engineering a deal that costs OpenAI little, it gets a significant foothold — as much as 30% market share, USB estimates — into one of the biggest build-outs of next-generation data centers the world has ever seen.
While Arcuri admits that AMD’s deal is “arguably less attractive” than Nvidia’s, “we see this as a major validation of its [AMD’s] roadmap that could snowball to other customers.”
