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

After AMD and Openai announced an expanded partnership on Monday, the banter Immediately accustomed to the unusual way, Openai would pay for its AMD purchases. It will use AMD’s own stock to do this.

In summary: Openai has agreed to help AMD develop its line of NVIDIA competitor chips, the instinct GPUs, and to purchase and deploy 6 gigawatts of capacity from AMD over several years. AMD said this deal is worth billions in revenue.

But Openai does not pay for this from its own income. Instead, AMD has granted Openai a boatload of equity warrants – up to 160 million AMD shares – that will vest in tranches as certain milestones are reached. Those milestones include specific stock price increases, with the final tranche contingent on AMD shares rising to $600 each, AMD revealed. They were trading at around $165 before the news hit and rose to $214 by Market Close Monday after the announcement.

If the stock price hits its numbers and Openai makes all its required contributions, and Openai owns all of AMD’s stock, selling none along the way, Openai could make enough on AMD stock to pay for a lot of GPUs. The stock could be worth around $100 billion.

“We would note that the final 6th tranche requires a market cap of ~$1T to settle – Ergo, if OAI were to hold the shares 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 a more likely scenario is that Openai will sell its AMD shares 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 all other AI workloads ergo, is valuable enough for AMD to make this funding gambit. “AMD highlighted ongoing customer dialogues beyond Openai and expects this agreement to ultimately accelerate AMD adoption momentum,” he wrote. In particular, Openai’s stamp of approval gives it to sell its GPUs to the many cloud service providers it already offers with CPUs.

So in the long run, those who really pay for Openai’s massive multi-year purchase of AMD GPUs will pay up and be institutional investors if they indeed bid up the stock price.

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 have given Nvidia a stake in the fast-growing AI provider, not the other way around.

But what choice did AMD have? In a deal that costs Openai little financial engineering, it will gain a significant foothold—as much as 30% market share, USB estimates—in one of the largest buildouts 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 an important validation of its [AMD’s] Roadmap that can snowball for other customers. ‘