AMD Seizes AI Lead
The chipmaker has an opportunity to demonstrate that it can compete with Nvidia Corp. in the AI computing market after Advanced Micro Devices Inc. secured a huge contract with OpenAI to develop artificial intelligence infrastructure.
Following the announcement of the deal on Monday, AMD’s stock shot up 24% to $203.71, increasing the company’s market value by $63.4 billion. Its current value of $330.6 billion surpasses that of Chevron Corp., General Electric Co., and Coca-Cola Co..
The deal, which is somewhat larger than the one the AI firm recently made with Nvidia, calls for OpenAI to install six gigawatts of AMD graphics processing units over a number of years. Additionally, it prepares the way for OpenAI to purchase a sizable portion of the chipmaker.
High-Stakes AMD AI Play
With the potential to generate tens of billions of dollars in additional revenue and solidify AMD’s position as a major player in AI technology, the transaction is a high-stakes test for the company. Additionally, there are dangers: It also links AMD’s success to the AI business, which some believe is a bubble.
Lisa Su, the CEO of AMD, said in a Bloomberg Television interview that “this is definitely the biggest deployment we have disclosed so far.” We are now starting a huge build-out. For our colleagues, stockholders, and ourselves, it is a huge thing.
Depending on the project reaching certain milestones, OpenAI will have the option to purchase up to 160 million AMD shares at a cent each as part of the agreement. That amounts to around 10% of the outstanding shares of the chipmaker.
AMD Bets Big on AI
AMD’s share price must keep rising in order to meet the goals. The price of the shares would need to hit $600 at the end of the deal. On Friday, AMD’s stock ended at $164.67.
During a conference call, Su said that the chipmaker intended to ensure that “OpenAI will be driven for AMD to be successful.” “And we receive more money the more OpenAI deploys, and they get to benefit too.”
As the artificial intelligence firm expands its processing capacity, the transaction marks the next significant data center acquisition for OpenAI. This is an extraordinary gamble by the technology sector that the unchecked demand for power-hungry AI technologies will continue.
OpenAI’s AI Spending Mystery
Nvidia said in September that it will spend up to $100 billion in OpenAI to construct new data centers with a minimum power capacity of 10 gigawatts and AI technology. That is equivalent to New York City’s peak power use.
The precise method by which OpenAI will pay for the high expenses of the chips and data centers required to develop and operate more sophisticated AI systems is unknown. Sam Altman, the CEO of OpenAI, said two months ago that he plans to invest “trillions” in infrastructure to safeguard the computer power he believes the business needs for AI services. Without giving specifics, Altman said that his business is developing a “new sort” of financial instrument to finance it.
Greg Brockman, the president of OpenAI, was questioned on Bloomberg Television about how his organization will pay for its enormous initiatives. According to him, the business is looking at a variety of possibilities, such as financing and stock. He said that many people underestimate how much processing power AI requires. Without additional infrastructure, OpenAI’s ability to provide new features and products is limited.
AI Boom Sparks Investor Caution
He said in the interview, “We look at equity and debt and all sorts of methods to pay for it.” “The money will come in due time.”
In the meanwhile, there are worries that the AI sector may have a similar destiny to the dot-com boom of the late 1990s, which culminated in a devastating collapse and a wave of bankruptcies. With the proliferation of multibillion-dollar AI chip and data center transactions worldwide, the concerns have only increased. The funding comes from debt, venture money, and, more recently, some more unusual agreements that have caused Wall Street to take notice.
The agreement maintains AMD’s technology competitive while OpenAI and other big data center owners invest billions in increasing AI capabilities. In the market for so-called accelerator processors, the chipmaker is still far behind Nvidia.
AMD Eyes $100B AI Future
AMD anticipates making $6.55 billion this year from this sector. It anticipates that the partnership with OpenAI will increase these revenues in 2027 and the following year. Executives said without giving a specific time range that the agreement would also serve as a launching pad for further use of its technologies, which may increase its local revenue to above $100 billion.
The precise timing of OpenAI’s chip deployments as part of the AMD agreement was not immediately apparent. The goal is to deliver goods as quickly as feasible, Su said on the call on Monday. She cited the stock warrant structure‘s five-year duration, which ends on October 5, 2030.
OpenAI may be able to lessen its need on Nvidia’s technology thanks to AMD’s support. Data center operators and OpenAI invest a significant amount of their infrastructure spending on the company’s products.
OpenAI Drives AI Chip Race
The income of Nvidia’s data center sector alone surpasses that of all other chipmakers combined. The business revenues more than quadrupled to $115 billion in its most recent fiscal year, and it is expected to increase at a similar rate this time around.
It was previously unclear, according to Bernstein analyst Stacy Rasgon, if AMD customers were only making orders in order to obtain bargaining power with Nvidia and other companies. “OpenAI may be big enough to demonstrate that is changing,” he added. “However, we will keep an eye out to see whether it does pique other significant clients’ genuine interest.”
According to Rasgon, AMD and other businesses involved in the development of AI infrastructure are now reliant on OpenAI’s ambitious objectives succeeding. According to the experts, Altman has long had the ability to either “lead us to the promised land” or bring the economy to its knees. “At this time, we are unsure of which is likely to occur.”
AMD Gains Edge Over Intel
AMD competed with Intel Corp. for a large portion of its existence in the personal computer and server CPU industries. Under Su, it has gained some clients away from Intel, and investors are even more enthralled with AMD as a result of its foray into AI technology. The shares had already risen 36% this year before Monday’s surge.
According to Chief Financial Officer Jean Hu, AMD will generate “tens of billions of dollars in revenue” from the OpenAI deal, increasing its profits per share.
When the first gigawatt of computation is deployed, which is expected to begin in the second part of next year, OpenAI’s AMD stock warrants will vest in accordance with the agreement. AMD Instinct MI450 CPUs will serve as the foundation for such PCs. With the installation of more hardware, more sections will vest.
AMD Expands to Rival Nvidia
The biggest publicly listed firm in the world, Nvidia, created the market for graphics processors, a kind of semiconductor that is now the foundation of processors used to run and train AI software. By introducing new software, processing, and networking equipment that makes it simple to swiftly build massive quantities of data center infrastructure, the business has increased the industry’s reliance on its technology.
AMD is quickly expanding its capabilities in an effort to match Nvidia’s range of products and enable it to take on a wider role.
According to Su, this is a gigantic pie on Bloomberg TV. Even while we like working with OpenAI, we also have a lot of other clients.