AMD’s Big AI Deal with Meta

Advanced Micro Devices (AMD) announced on Tuesday that it plans to sell as much as $60 billion worth of artificial intelligence chips to Meta Platforms over the next five years. This arrangement also gives Meta, the owner of Facebook, the option to acquire up to 10% of AMD’s stock.

This deal could eventually reach a total value exceeding $100 billion. Following the news, AMD’s stock jumped by more than 7%, while Nvidia, the leading competitor in the sector, remained fairly stable ahead of its earnings report on Wednesday.

With a surge in demand for AI processors, the competition is heating up between Nvidia and other specialized companies seeking to acquire limited supplies. In a related development last October, Alphabet struck a deal to supply Anthropic with tailored chips once reserved for its internal use, a contract worth billions.

AMD had previously entered into a similar agreement with OpenAI last year, which was viewed as a strong endorsement of its chips and software, leading to a notable rise in its stock price. Meanwhile, Meta had also made a deal with Nvidia for millions of AI chips.

“Meta is doing everything it can to secure its supply chain, aiming to avoid reliance on a single vendor and ensuring its AI initiatives are not hindered by chip availability,” remarked Matt Blitzman, a senior equity analyst at Hargreaves Lansdown.

“For AMD, this deal represents confidence in its next-generation AI hardware, although offering a 10% stake may indicate it’s struggling to generate robust demand,” he added.

Growing Industry Connections

The partnership underscores the increasingly interconnected nature of major players in the AI space, raising some concerns over circular trading within the industry.

Both Meta and OpenAI will hold stakes in vital suppliers, while Nvidia is contemplating investments in some of its largest customers, including ChatGPT’s parent company.

AMD plans to provide Meta with 6 gigawatts worth of chips, initiating with 1 gigawatt of its flagship MI450 hardware, expected to launch later this year. This initial gigawatt could power approximately 750,000 homes.

Investor worries about the AI market also stem from the lengthy wait for significant returns on Big Tech’s substantial investments in data center infrastructure.

Capital expenditures by firms like Alphabet, Microsoft, Amazon, and Meta are projected to reach at least $630 billion this year, with a significant portion directed toward data centers and AI chips, according to Reuters.

“The resurgence of cyclical trading in this industry raises further concerns for investors,” noted Dan Coatsworth, head of markets at AJ Bell.

Meta’s Custom Processor Plans

In addition to AMD’s premier graphics chips, Meta intends to acquire central processors, including ones specifically tailored for social media platforms.

The customized CPU aims to deliver impressive performance while maintaining low energy consumption, according to AMD’s CEO Lisa Su. The agreement will encompass two generations of AMD’s CPUs.

“Mark is undeniably ambitious about his objectives. We aim to maximize every facet of our technology to assist Meta in achieving them,” added Su, mentioning Meta CEO Mark Zuckerberg.

Meta played a role in designing the MI450 chip, which is engineered for a computing process known as inference, utilized by chatbots like OpenAI’s ChatGPT to respond to users. The chip will compete against Nvidia’s upcoming Vera Rubin processors.

Experts anticipate that the market for inference hardware might restrict the market size for the equipment essential for constructing the extensive models on which AI operates.

Under the terms of the agreement, AMD will issue 160 million stock warrants priced at just 1 cent, which will vest throughout the trading period after AMD’s stock price meets a target of up to $600. Furthermore, there are technical and commercial requirements that Meta must satisfy for each warrant tranche.

“Meta is making a substantial investment in AMD,” said Su.

Santosh Janardhan, Head of Infrastructure at Meta, indicated during a call with reporters that the company plans to continue sourcing chips from various suppliers while also developing its own processors.

Broadcom saw a decline of about 2%. This company provides custom chips and is recognized as a significant supplier for Meta; however, specific clients were not disclosed.

Additionally, Meta is reportedly discussing the use of Google’s tensor processors for AI-related projects. Given the extensive scale at which Meta is constructing its data centers and infrastructure, a variety of chip vendors will be essential, according to Janardhan.

“Ultimately, all chipmakers will have a role to play,” Janardhan concluded.