This article first appeared on The Motley Fool’s U.S. website.
Shares of Advanced Micro Devices (NASDAQ: AMD) catapulted higher today after the chipmaker signed a blockbuster deal with OpenAI, coming on the heels of a similar partnership between OpenAI and AMD rival Nvidia.
As of 9:59 a.m. ET, AMD stock was up 26.6% on the news after opening up 35%.
What’s happening with AMD and OpenAI?
On Monday morning, AMD and OpenAI announced an agreement for OpenAI to deploy 6 gigawatts of AMD GPUs over several years and several generations of chips. For context, 6 gigawatts could power more than 1 million homes. The partnership will start with an initial deployment of 1 gigawatt of AMD’s Instinct MI450 Series GPUs in the second half of next year.
The deal will make AMD a core compute partner of OpenAI, and the two companies are deepening a partnership that began with earlier editions of the MI GPU series.
As part of the agreement, OpenAI will receive a warrant of 160 million shares of AMD stock, which is structured to vest as specific milestones are reached in the deployment. Fully converted, those shares would be worth roughly US$32 billion now.
OpenAI CEO Sam Altman said, “This partnership is a major step in building the compute capacity needed to realize AI’s full potential. AMD’s leadership in high-performance chips will enable us to accelerate progress and bring the benefits of advanced AI to everyone faster.”
What it means for AMD
The deal with OpenAI not only creates a huge customer for AMD, but it also acts as validation for its data center GPUs, as the company has long played second fiddle behind Nvidia in that category.
Six gigawatts is a huge amount of demand to fulfill, and AMD said the deal was “expected to deliver tens of billions of dollars in revenue for AMD,” and to be “highly accretive to AMD’s non-GAAP [generally accepted accounting principles] earnings per share.”
Based on that statement, it’s not a surprise that AMD stock is having one of its best days in its history.
