Meta to take potential 10 per cent stake in AMD under new chip pact

Advanced Micro Devices (AMD.O) announced this week that it has agreed to sell up to $60 billion worth of artificial intelligence chips to Meta Platforms (META.O) over five years. The deal includes a provision allowing the Facebook owner to eventually purchase as much as 10 per cent of the chip firm.

AMD shares rose more than 6 per cent following the news, while market leader Nvidia (NVDA.O) initially dipped and later saw its stock price slide after its own quarterly earnings report on Wednesday.

Surging demand for AI processors has deepened competition for Nvidia and niche players as the industry scrambles to secure scarce supply. Last October, Alphabet (GOOGL.O) 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 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. 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 per cent 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 last week.

Investor worries about the AI market extend to the long wait for significant payoffs from Big Tech’s relentless spending to expand data center infrastructure. Capital expenditure from Alphabet, Microsoft (MSFT.O), Amazon.com (AMZN.O), and Meta is expected to total at least $630 billion this year, according to Reuters calculations.

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.

Meta helped contribute to the MI450 design, which is optimized for “inference”—the process where an AI model responds to a user’s query. The chip will compete directly with Nvidia’s next-generation Vera Rubin processor.

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 after the AMD stock price hits performance targets up to $600.

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