Advanced Micro Devices (AMD) has been fighting hard to close the gap with Nvidia (NVDA) in the intelligence chip race. For a long time, that gap seemed impossible to close. Until now.
AMD and Meta (META) recently announced an ambitious, multi-year agreement to invest six gigawatts of AMD Instinct graphics processing units across Meta’s global AI infrastructure. AMD stock jumped 8.8% on the news, as the deal could be a turning point for the chip maker.
www.barchart.com
To understand why this deal is important, you need to understand the AI infrastructure race and how big it is.
Meta CEO Mark Zuckerberg has committed to spending as much as $135 billion by 2026 as it tries to catch up with OpenAI, Alphabet ( GOOG ) ( GOOGL ), and Anthropic in the global AI race. The company has plans for 30 data centers, 26 of which are in the US
This is where AMD comes in.
Under this agreement, Meta is expected to release six gigabytes of AMD Instinct GPUs in multiple generations of products. The first gigawatt shipment has been committed, and shipments are scheduled to begin in the second half of 2026.
Here are the key details: the first shipment will use a custom AMD Instinct GPU based on its MI450 architecture, specially optimized for Meta workloads.
This is the first time that AMD has built a custom GPU of this type. AMD CEO Lisa Su described the process as “starting with the workload first,” not the chip, which marks a significant shift in how AMD approaches its major customers.
AMD CFO Jean Hu said the deal is expected to generate “double billion dollars per gigawatt” in data center AI. At six gigawatts, you’re looking at a deal worth more than $100 billion over its lifetime.
Chip analyst Ben Bajarin of Creative Strategies, who was briefed on the deal, said CNBC the deal is worth “tens of billions of dollars over at least four years.”
The deal also includes a performance-based warrant that gives Meta an option to buy up to 160 million AMD shares, about 10% of the company. That sounds scary at first, since giving away 10% of your equity is a big move.
But the structure is important to understand. Warranty is not available at one time. Corresponds to performance events.
The first tranche only applies when AMD ships the first gigawatt of Instinct GPUs.
Additional tranches vest as Meta purchases reach six gigawatts.
In addition, vesting is also tied to AMD hitting certain stock price thresholds, and the final phase requires AMD to reach $600 per share.
Su called the structure a “win-win” for shareholders. Hu said the deal is “consistent with our non-GAAP earnings per share.” In plain terms, AMD’s bottom line is getting better, not worse, even after accounting for warranties.
This agreement is part of a wider pattern. In October, AMD signed a similar agreement with OpenAI, which also created approximately 160 million warrants linked to shipments and stock price estimates. Two big names in AI have, in just a few months, made AMD a strategic partner.
Let’s understand where AMD stands. Nvidia still controls about 90% of the AI chip market and is worth $4.66 trillion. Compared to AMD, the market value is much lower at $350 billion. But the momentum is changing.
AMD reported fourth-quarter sales growth of 34% year-over-year (YoY) to $10.27 billion. The company’s data center AI business has been growing rapidly, and AMD has set a long-term goal of surpassing $20 in annual earnings per share within the next three to five years.
The Meta deal wasn’t there when AMD set that target.
“We believe the magnitude of this deployment will strengthen our AI platforms and expand opportunities for both existing and new customers,” Su said in an exclusive call to the company’s investors.
For investors watching AMD from the sidelines, that could be the signal they’ve been waiting for.
Of the 46 analysts covering AMD stock, 31 recommend a “Strong Buy,” two recommend a “Neutral Buy,” and 13 recommend a “Hold.” The average price of AMD stock is estimated at $286.90, above the current price of about $214.
www.barchart.com
As of the date of publication, Aditya Raghunath had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
