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

AMD and OpenAI have expanded their partnership, with OpenAI using AMD stock to finance its billions in chip purchases. AMD granted OpenAI stock warrants that will vest as AMD's share price reaches certain milestones. Although this financing scheme may benefit AMD, it also poses risks depending on OpenAI's stock management, potentially allowing AMD to capture significant market share in AI workloads.

Key points

  • AMD and OpenAI announced an expanded partnership.
  • OpenAI will use AMD stock to pay for billions in chip purchases, including Instinct GPUs and compute capacity.
  • AMD granted OpenAI up to 160 million shares in stock warrants, vesting based on stock price milestones.
  • The last tranche requires AMD shares to hit ~$600 million each, potentially valuing OpenAI's stake at ~$100 billion if held until then.
  • UBS analyst Timothy Arcuri believes OpenAI is likely to sell some AMD shares to pay its bill.
  • This deal validates AMD's AI GPUs for OpenAI workloads, enhancing AMD's credibility with other clients.
  • AMD aims to gain up to 30% market share in next-gen data centers.
  • Nvidia also finances OpenAI's GPU purchases through significant investments, showing differing approaches in partnerships.

Why it matters

  • This partnership reflects the increasing competition in the AI chip market as companies like Nvidia and AMD vie for dominance.
  • The use of stock to finance purchases is an innovative financial strategy not commonly seen at this scale.
  • As AI adoption grows, AMD's technologies could become pivotal in large-scale cloud service deployments, aligning with IT trends for 2025 focusing on cloud and AI integration.

The partnership between AMD and OpenAI not only signifies a shift in tech financing but also highlights the competition between AMD and Nvidia in the AI sector. AMD's innovative approach may bolster its market presence, despite potential risks associated with stock price fluctuations.