Advanced Micro Devices Inc. (AMD) stock surged more than 10% in pre-market trading on Tuesday morning after the chipmaker announced an expanded, multi-year partnership with Meta Platforms Inc.
The move could significantly strengthen AMD’s position in the fast-growing artificial intelligence chip market.
Under the agreement, American tech giant Meta will purchase millions of chips from the processor manufacturer over five years. The partnership could also see Meta take an equity stake in AMD, according to multiple reports.
The company had signed a similar pact with ChatGPT-maker OpenAI last year, which was hailed as a vote of confidence in its chips and software, giving a major boost to its stock price, Reuters reported.
Details of the partnership
The deal is valued at up to $60 billion, and also allows Meta, the parent company of Facebook and Instagram to acquire as much as a 10% stake in the the chip firm, news agency Reuters reported.
As part of the transaction, AMD has also issued Meta a warrant, a financial derivative product that can later be converted to shares, in this case covering up to 160 million of them.
According to a AFP report, AMD has committed to supplying Meta with up to 6 gigawatts worth of graphics processing units (GPUs), the high-performance chips that are fundamental to training and running advanced artificial intelligence systems.
What should this deal mean for AMD?
The announcement suggests that AMD is keeping up with its bigger rival Nvidia, which revealed its own tie-up with Meta Platforms last week. It also shows that companies are still spending heavily on AI equipment, even as some investors express fears that all this rapid investment could turn into a bubble.
The deal is set to benefit AMD’s position within the chip market. Meanwhile, for Meta, the deal is expected to bring components that are customised to the company’s requirement. It also will have the ability to influence how those semiconductors are designed going forward, Bloomberg said.
Meta is already the chipmaker’s second-largest customer, and will now be increasingly important to the chipmaker’s growth. AMD reported $34.6 billion in sales last year and is on its way to boost revenue by 34% this year, according to Wall Street estimates. The addition of even $10 billion of extra sales would accelerate its efforts to gain ground on Nvidia, the agency said.
The tie-up with Meta Platforms suggests confidence that AMD shares could see a much longer rally. Some of the warrants issued to Meta would only vest if AMD’s share price climbs to $600. The company’s stock closed pn Monday at $196.60.
