[nerdix]

The title didn't make this obvious (at least not to me) but it's OpenAI that has the option to buy 10% of AMD. Not the other way around.

In case you're wondering how OpenAI could afford to buy 10% of AMD while they are hemorrhaging money -- the terms of the deal allows OpenAI to buy 160 million shares at 1 cents a share.

I could be thinking about this the wrong way but it appears that AMD is basically subsidizing the cost of the GPUs with equity.

[HarHarVeryFunny]

AMD is giving OpenAI warrants (cf options) to buy AMD shares at 1c/share, but these only vest if OpenAI goes thru with AMD purchases as intended.

It seems to basically give OpenAI an incentive to go thru with the deal.

[stingraycharles]

The stock popped quite a bit today, so investors seem to think this is a good deal for AMD. I tend to agree, may finally enable AMD to get a foot in the door in the whole large scale AI market.

[throwaway2037]

Can someone with banking / deal-making experience explain to me how this warrant works? My point: If OpenAI exercises the warrant and buys 10% of AMD for 1 penny per share, where does AMD get the shares? Or will they do a secondary offering and dilute existing shares? Or do they take from treasury holdings (of shares)? Or does AMD coordinate a buyback of shares, then deliver to OpenAI?

[agentcoops]

I’ve seen a lot of confusion about this type of deal recently: notably, it is often taken to imply something more or less shady is going on. I’m not sure when such arrangements became a thing, but I know equity stakes have long been an important part of enterprise SaaS deals. The reasoning is relatively straight-forward: if a large client commits to a vendor in a way that holds some risk to the former and will materially impact the latter’s business — and especially if the client’s support of said vendor will directly or indirectly benefit their competitors who might also use this vendor — an equity stake is a way to offset risk with upside.

You can see this play out in the history of OpenAI. NVIDIA supported them from an early stage and in exchange received OpenAI equity to offset the risk. Now from a position of relative strength, OpenAI has become concerned about vendor lock-in and so is rationally exploring AMD. Yet, because any such deal will materially impact AMD’s stock price and there is risk both of losing time trying to train with new chips as well as of benefiting competitors if they work with AMD to improve their hardware offerings/APIs, it is reasonable to ask for equity upside. So, for the same reasons (increase in stock price and enterprise client who will help improve their product offering) only without risk, is it understandable why AMD would want to offer equity on such favorable terms.

TLDR; My sense is that the sudden skepticism towards this relatively common enterprise deal structure seems to derive from the understandable interest in identifying signs of an AI bubble. Such a bubble may (and indeed almost certainly does) exist, but I don’t think this is evidence thereof.

----

EDIT: I'm just clarifying something I saw in a lot of responses. My only point is that it is important to try and empirically tease out what represents: (1) a circular deal in which vendors facing the limits of growth are subsidizing vulnerable clients; versus (2) a risk-hedging deal in which a non-market leading vendor offers upside to a market leading client.

I believe the recent Oracle and NVIDIA deals are cases of (1) that provide evidence of an AI bubble, but that this AMD deal is most likely a case of (2) that provides no further evidence.

[yousif_123123]

I think at least part of the 10% is if AMD stock reaches 600.

Not that I disagree that this looks weird. Why was that needed to be offered? Couldn't they just buy the AMD chips if they're good enough? Or Nvidia is it's better?

I also don't get why there commiting so much to the future, are they sure of the quality of the products and their demand that much?

[AlanYx]

>Couldn't they just buy the AMD chips if they're good enough?

OpenAI would presumably need to raise money to buy the AMD chips.

The "genius" of this deal is that AMD is "giving away" 10% of the company (at $0.01/share) to OpenAI. Then OpenAI will presumably turn around and sell those shares (or borrow against them) to raise enough money to purchase the AMD GPUs.

[alberth]

> allows OpenAI to buy 160 million shares at 1 cents a share.

> I think at least part of the 10% is if AMD stock reaches 600.

AMD market cap today is $350B (at $200/share).

AMD would need to 3x their market cap ($1,000B) to be at $600/share.

Which would mean that OpenAI could gain $100B in AMD stock, for the minuscule cost of only $1.6 million (160 million shares at 1 cent each).

--

Sam is spinning the world on his finger tip with these deals he's crafting.

[N70Phone]

> I also don't get why there commiting so much to the future, are they sure of the quality of the products and their demand that much?

It's one big game of musical chairs, and everyone can hear the phonograph slowing down.

OpenAI is making these desperation plays because they've ran out of hype. GPT-5 "bombed", the wider public doesn't believe AI is going to keep getting exponentially better anymore. They're out of options to generate new hype beyond spewing ever larger numbers into the news cycle.

AMD is making this desperation play because soon, once the AI bubble pops, there'll be a flood of cheap unused GPUs & GPU compute. Nobody's going to be buying their new cards when you can get Nvidia's prior gen for pennies on the dollar.

[zerosizedweasle]

This is too top of the top to ignore. Everyone can see the scam now, it's a joke

[ralfn]

Because of the vesting milestones the stock price of AMD would go up by such an extent that creating more s hares would not dilute the share price.

Obviously, for the stock price to go up money needs to come from somewhere. It makes sense that this deal would lower the NVidia stock price, so technically it will be NVidia investors waiting too long to respond to this news that will be paying for this. A tax on the mistaken believe that NVidia has an monopoly on putting transitions in a particular configuration which they obviously don't. The rest is just momentum and this would kill that.

The real winners will be TSMC and ASML

[Havoc]

> Obviously, for the stock price to go up money needs to come from somewhere.

Not convinced that’s true anymore in current climate. Bigger numbers announcements and AI Pixie dust works too apparently lol

[j4hdufd8]

> A tax on the mistaken believe that NVidia has an monopoly on putting transitions in a particular configuration which they obviously don't

NVIDIA doesn't place transistors in particular configurations. Foundries do that for them. And it is currently common sense that the software is the moat, not the hardware design.

Good luck changing the ecosystem to use AMD.

[acchow]

"Subsidizing" is one way to put it. But these are options not shares. We will discover in a few years that it was actually AMD who is paying OpenAI to take GPUs.

[hristov]

It sure seems that way. The stock options are worth, at the current price of AMD stock, about 32.8 Billion dollars. AMD is giving out these stock options essentially for free in exchange of open ai purchasing chips from AMD.

So open ai are getting a 32.8 billion dollars rebate. But on what? Here the press releases are a bit vague. They say that Open ai committed to buying six gigawatts of AMD chips. Anybody know how to convert that into money?

[mNovak]

I figure these GPUs are typically around 1kW (unclear if 6GW is including overhead like cooling, which might double(?) the power), so in the range of 3-6M GPUs.

If these are somewhere in the range of $10-30k (who knows what current or future models are contemplated), that's $30-180B. So clearly the low end doesn't make sense for the 'rebate', but at the high end a ~17% discount doesn't seem unreasonable.

[jasonwatkinspdx]

> They say that Open ai committed to buying six gigawatts of AMD chips. Anybody know how to convert that into money?

MI350 spec sheet says it's 1000 watts typical. So we're talking about something on the scale of a couple million chips.

[doctorpangloss]

> In case you're wondering how OpenAI could afford to buy 10% of AMD while they are hemorrhaging money -- the terms of the deal allows OpenAI to buy 160 million shares at 1 cents a share.

Ha ha, OpenAI can afford this because your mom uses a grand total of 7 pieces of software owned by 5 companies, 4 are the largest public companies in the world, and the 5th one is OpenAI.

[colordrops]

Hopefully part of the contract is that OpenAI must make any software frameworks they build to utilize AMD GPUs open source.

[strangattractor]

Maybe they are using the $100 Billion NVidia investment to pay for this:)

If this ship sinks they are all going down together.

[giancarlostoro]

Similar to how Microsoft bought out nearly half of OpenAI, though they offered compute credits IIRC. I wonder how much into Microsoft's investment OpenAI is in.

Edit: Apparently what Microsoft owns is 49% profit-sharing interest in OpenAI, specifically in the 'capped profit' for profit subsidiary. So weird, but hey, it's still a slice of the pie. Plus they can exclusively sell access to the models.

[rvba]

Microsoft seems to have made a good deal: it got the models AND profits.

Also microsoft is pushing copilot to office and I think it will sell. Since they sell to general B2B and not only to the peogrammer niche.

AMD is trying to buy market share by donating 10% equity. I also think it is crazy

[dist-epoch]

> I could be thinking about this the wrong way but it appears that AMD is basically subsidizing the cost of the GPUs with equity.

Yes, you are reading it wrong. The big winner here is AMD, not OpenAI.

If there is any signal here, it's that AMD is still in the AI game. AMD stock is up 30% on this news.

[nerdix]

I didn't mean to imply that there was a winner or loser. Just that AMD was subsidizing it's GPUs with equity.

I think there are logical reasons for both companies to agree to this deal. AMD is trying to break CUDA dominance. OpenAI is getting extremely cheap compute for expansion and they'd also benefit from the Nvidia monopoly falling if that ever happens.

[orky56]

OpenAI isn't publicly listed so it's hard to tell how this affects them from a "share price" concept. However for a company that's not public and only has capital from financing rounds and revenue, this gives OpenAI a lot more flexibility for the future and hedges risk while maximizing upside.

[boringg]

Its called hedging your risk: making sure Nvidia isn't the only game in town.

[coliveira]

This is money from nothing, right? They just found the tree of money.

[doodlebugging]

To paraphrase Dire Straits - The money from nothing and the chips for free.

[dagaci]

Lol and I had to pay >$60 a share for my little bundle of AMD!