AMD clinches second mega chip supply deal, this time with Meta

Advanced Micro Devices said on Tuesday it has agreed to sell up to $60 billion worth of artificial intelligence chips to Meta Platforms over five years in a deal that allows the Facebook owner to purchase as much as 10% of the chip firm.

AMD shares rose more than 6% in early trading, while market leader Nvidia set to report results on Wednesday, fell around 1%.

Surging demand for AI processors has deepened competition for Nvidia and niche players as the industry scrambles to secure scarce supply. In October, Alphabet agreed to supply Anthropic with custom chips it had long reserved for in-house use in a deal worth tens of billions of dollars.

AMD had signed a similar pact with OpenAI last year, which was hailed as a vote of confidence in its chips and software, significantly boosting its stock price, while Meta has separately struck a deal with Nvidia to buy millions of AI chips.

“Meta is locking in supply, diversifying away from a single vendor, and doing whatever it takes to make sure its AI ambitions aren’t bottlenecked by chips,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“For AMD, this is a vote of confidence in its next-generation AI hardware – but having to give up a 10% stake suggests it could be struggling to generate organic demand.”

RETURN OF CIRCULAR DEALS

The partnership also highlights the deepening ties among some of the AI industry’s top players amid rising concerns around circular deals.

Meta and OpenAI are set to own a stake in one of their most significant suppliers while Nvidia is eyeing investments in some of its largest customers, including the ChatGPT parent.

AMD will supply six gigawatts’ worth of chips to Meta, starting with one gigawatt of the company’s forthcoming MI450 flagship hardware in the second half of this year, AMD CEO Lisa Su told a news briefing.

One gigawatt is enough to power roughly about 750,000 homes on average.

Investor worries about the AI market also extend to the long wait for significant payoffs from Big Tech’s relentless spending to expand data center infrastructure.

Capital expenditure from Alphabet, Microsoft, Amazon.com and Meta is expected to total at least $630 billion this year, according to Reuters calculations, with most of the spending focused on data centers and AI chips.

“The return of circular transactions in the industry gives investors something else to worry about,” said Dan Coatsworth, head of markets at AJ Bell.

META BETS ON CUSTOM PROCESSORS

In addition to AMD’s flagship graphics chips, Meta also plans to buy central processors, including a variant that will be customized for the social media platform’s needs.

The custom CPU will be tuned to deliver powerful performance while keeping energy consumption as low as possible, Su said. The deal will include two generations of AMD’s CPUs.

“So no question Mark is very, very ambitious in what he wants to accomplish, and we want to use every aspect of our technology to really help Meta to accomplish that,” Su said, referring to Meta CEO Mark Zuckerberg.

Meta helped contribute to the MI450 design that is optimized for a computing process known as inference, which is when a chatbot such as OpenAI’s ChatGPT responds to a user’s queries. The chip will compete with Nvidia’s next-generation Vera Rubin processor.

Industry analysts expect the market for inference hardware to dwarf the size of the market for the equipment needed to build the large models AI runs on.

As part of the agreement, AMD will issue a warrant for 160 million shares with an exercise price of one cent.

The warrant will vest over the course of the deal and will do so after AMD stock price hits rising performance targets up to $600. In addition to the stock price targets, there are “technical and commercial considerations” for each tranche of the warrant that Meta needs to fulfill.

“Meta is making a big bet on AMD,” Su said.

Meta plans to continue to buy chips from other vendors and develop its in-house processors at the same time, Santosh Janardhan, Meta’s infrastructure head, said in a call with reporters.

Broadcom (AVGO.O), opens new tab dropped around 2%. The company is a provider of custom chips and analysts say it is a key supplier to Meta, though it does not identify its hyperscaler customers.

Meta has also been in talks with Google about using the company’s tensor processors for AI work, sources have said. The scale at which Meta is building data centers and infrastructure requires multiple chip vendors and approaches, Janardhan said.

“All of the chip makers end up having sort of a seat at the table,” Janardhan said.