OpenAI gets the chips, AMD gets the market, and in the end, investors “foot the bill”?

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AMD and OpenAI announced on Monday that they are expanding their partnership. This multi-billion-dollar chip procurement deal employs an unusual payment method: OpenAI will use AMD's own stock to pay for the chips. This unique financing arrangement essentially allows AMD to provide financing for its customer's large-scale purchases, with the ultimate cost potentially borne by investors who drive up the stock price.

Under the agreement, OpenAI will help AMD improve its Instinct GPU product line, which competes with Nvidia, and will purchase and deploy 6 gigawatts of AMD computing power over multiple years. AMD is granting OpenAI up to 160 million stock warrants, which will be vested in batches according to specific milestones, with the final batch requiring AMD's stock price to reach $600 before vesting.

AMD's share price was about $165 before the announcement, and soared to $211 by Tuesday's close. UBS analyst Timothy Arcuri pointed out that if OpenAI holds all the shares until the end of the agreement, their holdings could be worth about $100 billion.

This arrangement gives AMD an important opportunity to participate in the massive wave of AI data center construction, potentially gaining up to a 30% share of the market, while also providing significant validation of its AI GPU products from OpenAI.

How the Stock Financing Model Works

The stock warrants AMD grants to OpenAI will be vested in batches, each linked to specific stock price targets. The final, sixth batch of warrants requires AMD's market cap to reach about $1 trillion before vesting. According to UBS analyst Timothy Arcuri, if OpenAI holds the shares until the end of the agreement, their holdings would be worth about $100 billion.

However, Arcuri believes it is more likely that OpenAI will sell AMD shares during the process to pay its AMD bills. This essentially serves as a financing solution provided by AMD for its customer’s purchases.

The core logic of this arrangement is that AMD is using equity instead of cash to finance OpenAI's large chip procurement, allowing OpenAI to access the computing power it needs at a relatively low upfront cost.

Market Validation Value Surpasses Financing Cost

Although this financing arrangement "may not be as attractive as Nvidia's deal" for AMD, Arcuri believes that obtaining validation from OpenAI for AMD’s AI GPU capabilities is enough for AMD to take on this financing risk.

OpenAI's endorsement proves AMD's AI GPUs can handle OpenAI's workloads, and therefore can handle any other AI workload as well. AMD emphasized that, aside from OpenAI, they are also in talks with other customers, and expect this deal to ultimately accelerate the adoption momentum for AMD.

In particular, OpenAI's endorsement gives AMD the opportunity to sell GPUs to many cloud service providers to whom it already supplies CPUs. This market validation effect could snowball and expand to other customers.

Investors Ultimately Bear the Cost

In the long run, the ones truly footing the bill for OpenAI’s massive, multi-year AMD GPU purchases will be retail and institutional investors—if they do indeed push up the stock price.

This model contrasts with Nvidia’s investment in OpenAI. Nvidia’s $10 billion investment announced last month also, in a sense, provides financing for OpenAI’s purchase of Nvidia products, but the distinction is that Nvidia’s various investments let it gain stakes in the rapidly growing AI provider, rather than the reverse.

For AMD, this transaction, engineered through financial structuring, allows OpenAI to purchase chips with almost no upfront cost, and enables AMD to secure an important foothold in the next generation of globally scaled data center construction—potentially gaining up to a 30% market share.

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