Leading tech firm Advanced Micro Devices (AMD) has closed a massive multiyear deal with OpenAI. This partnership is a huge win for AMD, as it provides further validation of their AI roadmap and prepares them for significant growth amid the cutthroat semiconductor landscape. While analysts note that AMD’s arrangement is “arguably less attractive” than its rival Nvidia’s deal, the implications of this partnership extend beyond immediate financial gains.
To that end, OpenAI already pledged to purchase every last one of AMD’s GPUs. These GPUs are uniquely optimized to deliver the performance needed to power advanced AI workloads. This strategic move places AMD at the forefront of the enormous ramping of next-gen data centers. It would allow the United States to lock in the company to capture as much as 30% market share of the highly lucrative and burgeoning AI industry. On the day of the announcement, AMD’s share price was trading at roughly $165. By market close on Monday, it had already jumped to $214, demonstrating just how giddy investors are over the merger.
Timothy Arcuri, a UBS analyst interestingly enough, described the importance of this partnership as a validation of AMD’s technological roadmap. He stated,
“We see this as a major validation of its [AMD’s] roadmap that could snowball to other customers.”
The validation of AMD’s AI capabilities through OpenAI could lead to increased interest from other potential clients, further expanding AMD’s market presence. Arcuri pointed out that AMD is currently in conversations with partnerships from the other customers. He thinks this agreement will make a huge difference in AMD’s adoption momentum.
Beyond shoring up its competitive landscape, the economics of the deal seem favorable to OpenAI. The value for the deal is structured in a very particular way that makes the deal cost OpenAI very little up front. OpenAI intends to sell its AMD shares in installments. This smart strategy will go a long way toward financing its upcoming GPU purchases. This dynamic could result in retail and institutional investors indirectly covering the costs associated with OpenAI’s substantial investment in AMD GPUs.
Arcuri highlighted the real financial upside connected to AMD’s stock included in the agreement. He explained that
“The final 6th tranche requires ~$1T market cap to vest – ergo, if OAI were to hold stock until the end of the deal, its stake would be worth ~$100B.”
This upbeat outlook enhances the attractiveness of AMD’s stock. Analysts are already predicting the company’s valuation may reach $100 billion any day now. The potential value of this partnership and the excitement surrounding their collaboration has clearly made its way into financial markets.
AMD is deepening its commitment to the AI field through partnerships with OpenAI. Industry experts recognize that competitive hurdles still await. With Nvidia continuing to dominate, AMD’s deal likely won’t be enough to make it as attractive as Nvidia was — at least in the near-term. The long-term perception of AMD’s technological superiority and impact on their market share might be greater than these short-term impressions.
