SAN FRANCISCO – Advanced Micro Devices Inc. said Tuesday it has agreed to sell up to $60 billion worth of artificial intelligence chips to Metaplatforms Inc. over five years in a deal that allows Facebook’s owner to buy up to a 10% stake in the chip company.
AMD shares rose more than 6% in early trading, while market leader Nvidia, which is scheduled to report earnings on Wednesday, fell about 1%.
A surge in demand for AI processors has intensified competition between Nvidia and niche players as the industry scrambles to secure scarce supplies. In October, Alphabet agreed to supply Anthropic with custom chips it had long reserved for internal use in a deal worth tens of billions of dollars.
AMD had a similar deal with OpenAI last year, which was hailed as a vote of confidence in the company’s chips and software and sent its stock price up significantly, while Meta separately struck a deal with Nvidia to buy millions of AI chips.
“Meta is doing everything possible to secure supply, diversify away from a single vendor, and ensure its AI ambitions are not bottlenecked by chips,” said Matt Blitzman, 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 that AMD may be struggling to generate substantial demand.”
Circular transaction returns
The partnership also highlights growing ties between some of the AI industry’s top players amid growing concerns over circular trading.
Meta and OpenAI will hold stakes in one of its most important suppliers, while Nvidia is considering investments in some of its largest customers, including its parent company, ChatGPT.
AMD plans to supply Meta with 6 gigawatts worth of chips, starting with 1 gigawatt of its MI450 flagship hardware, which the company plans to launch in the second half of this year, AMD CEO Lisa Su said in a news briefing.
One gigawatt is enough to power about 750,000 homes on average.
Investor concerns about the AI market also extend to the long wait for big returns from Big Tech’s relentless spending to expand data center infrastructure.
Capital spending by Alphabet, Microsoft, Amazon.com and Meta is expected to total at least $630 billion this year, with most of the spending focused on data centers and AI chips, according to Reuters calculations.
“The return of cyclical trading in the industry gives investors other things to worry about,” said Dan Coatsworth, head of markets at AJ Bell.
Meta bet on custom processors
In addition to AMD’s flagship graphics chips, Meta also plans to buy central processors, including versions customized to the needs of social media platforms.
The custom CPU is tuned to deliver strong performance while keeping energy consumption as low as possible, Su said. The deal will include two generations of AMD’s CPUs.
“So there’s no question that Mark is very ambitious in what he wants to accomplish, and we want to use every aspect of our technology to really help Meta achieve that,” Hsu said, referring to Meta CEO Mark Zuckerberg.
Meta helped design the MI450, which is optimized for a computing process called inference, in which chatbots, such as OpenAI’s ChatGPT, respond to user queries. The chip will compete with Nvidia’s next-generation Vera Rubin processors.
Industry analysts expect the market for inference hardware to shrink the market size for the equipment needed to build the large-scale models on which AI operates.
As part of the agreement, AMD will issue 160 million stock warrants with an exercise price of 1 cent.
The warrants will vest during the trading period and will vest after AMD’s stock price reaches a performance target of up to $600. In addition to the price target, there are “technical and commercial considerations” for each tranche of warrants that Meta must fulfill.
“Meta is making a big bet on AMD,” Su said.
Santosh Janardhan, Meta’s head of infrastructure, said in a call with reporters that Meta plans to continue buying chips from other vendors while also developing its own processors.
Broadcom fell about 2%. The company is a provider of custom chips, and analysts say it is a major supplier to Meta, but they did not specify the hyperscaler’s customers.
Meta is also in talks with Google about using its tensor processors for AI work, sources said. The scale at which Meta is building its data centers and infrastructure requires multiple chip vendors and approaches, Janardhan said.
“Eventually all chipmakers will be seated at the same table,” Janardhan said.
(Reporting by Stephen Nellis and Max A. Charney in San Francisco; Alshiya Bajwa and Zaheer Kachwala in Bangalore; Editing by Edwina Gibbs and Sriraj Kalvira)
