AMD Secures Major AI Chip Supply Deal with Meta

Advanced Micro Devices, Inc., known as AMD, has agreed to a significant deal to supply artificial intelligence chips to Meta Platforms, Inc. The agreement is valued at up to USD 60 billion over five years. This pact allows Meta to purchase as much as 10% of the chip organisation.

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Following the announcement, AMD shares rose more than 6% in early trading. Market leader Nvidia Corporation saw its shares fall around 1%.

Surging demand for AI processors has intensified competition among companies, with the industry working to secure scarce supply. Alphabet, Inc. agreed to supply Anthropic with custom chips, a deal worth tens of billions of dollars.

AMD had previously signed a similar pact with OpenAI. This earlier agreement was hailed as a vote of confidence in AMD’s chips and software, substantially boosting its stock price.

Meanwhile, Meta has also struck a separate deal with Nvidia to acquire millions of AI chips. Matt Britzman, senior equity analyst at Hargreaves Lansdown, stated that Meta is securing supply and diversifying away from a single vendor to ensure its AI ambitions are not hindered by chip shortages.

Britzman added that the deal represents a vote of confidence in AMD’s next-generation AI hardware, but indicated that giving up a 10% stake might suggest difficulty in generating organic demand. This partnership also highlights deepening ties among some of the AI industry’s top players amidst rising concerns about circular deals.

Meta and OpenAI are poised to own a stake in one of their primary suppliers. Nvidia is also considering investments in some of its largest customers, including ChatGPT parent OpenAI.

AMD will supply six gigawatts’ worth of chips to Meta. Chief Executive Officer Lisa Su stated that this supply will begin with one gigawatt of the company’s forthcoming MI450 flagship hardware in the second half of this year. One gigawatt is sufficient to power approximately 750,000 homes on average.

Investor concerns about the AI market also include the prolonged wait for substantial returns from Big Tech’s continuous spending on data centre infrastructure expansion. Capital expenditure from Alphabet, Microsoft Corporation, Amazon.com, Inc., and Meta is expected to total at least USD 630 billion this year, according to Reuters calculations, with most spending directed towards data centres and AI chips.

Dan Coatsworth, head of markets at AJ Bell, commented that the return of circular transactions in the industry provides investors with additional concerns. In addition to AMD’s flagship graphics chips, Meta plans to purchase central processors, including a variant customised for the social media platform’s requirements.

Chief Executive Officer Lisa Su explained that the custom CPU will be fine-tuned for powerful performance while maintaining low energy consumption. The deal will encompass two generations of AMD’s CPUs. Su noted that Meta Chief Executive Officer Mark Zuckerberg is highly ambitious, and AMD aims to utilise every aspect of its technology to support Meta’s goals.

Meta contributed to the MI450 design, optimising it for inference, which is the process where a chatbot, such as OpenAI’s ChatGPT, responds to user queries. This chip is expected to compete with Nvidia’s next-generation Vera Rubin processor.

Industry analysts anticipate that the market for inference hardware will surpass the market for equipment needed to build the large models on which AI operates. 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 duration of the deal after AMD’s stock price achieves increasing performance targets, up to USD 600. Beyond stock price targets, Meta must fulfil specific technical and commercial considerations for each tranche of the warrant. Su stated, "Meta is making a big bet on AMD."

Santosh Janardhan, Meta’s infrastructure head, informed reporters that Meta intends to continue acquiring chips from other vendors and simultaneously develop its in-house processors. Broadcom Corporation shares dropped approximately 2%.

Broadcom is a provider of custom chips and analysts suggest it is a key supplier to Meta, though it does not identify its hyperscaler customers. Sources indicated that Meta has also been in discussions with Google about utilising its tensor processors for AI work.

Janardhan explained that the extensive scale at which Meta is constructing data centres and infrastructure necessitates multiple chip vendors and diverse approaches. He concluded that "All of the chip makers end up having sort of a seat at the table."

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• AMD agreed to a USD 60 billion AI chip supply deal with Meta over five years.

• Meta can acquire up to a 10% stake in AMD as part of the agreement.

• AMD will supply six gigawatts of chips, starting with its MI450 flagship hardware.

Source: REUTERS