Shares of Advanced Micro Devices (NASDAQ: AMD) rocketed higher on Monday after the chip company announced a megadeal with OpenAI. The agreement will see OpenAI deploy AI data centers totaling 6 gigawatts of power consumption using AMD's Instinct AI GPUs. The first gigawatt deployment is scheduled to start in the second half of 2026 using AMD's next-generation Instinct MI450 GPUs.

Paying a king's ransom

The deal is more complicated than OpenAI simply buying AMD's AI GPUs. As part of the arrangement, AMD issued OpenAI a warrant for up to 160 million shares of AMD stock. The warrant will vest in tranches based on specific milestones, and the full amount can be exercised once all 6 gigawatts of capacity has been deployed, once AMD has reached certain share-price targets, and once OpenAI has reached certain technical and commercial milestones. The warrant allows OpenAI to purchase shares of AMD at $0.01 per share.

At the stock price as of late Monday morning, 160 million shares of AMD are worth about $34 billion. At the $600 price target that is attached to the final tranche of the warrant, those shares would be worth $96 billion. OpenAI will pay essentially nothing for those shares, so this deal is effectively a trade: OpenAI buys AMD's GPUs, and AMD hands over a minority stake. Based on the current share count and factoring in the impact of the warrants, OpenAI could own as much as 9% of AMD's outstanding shares if the warrant is fully exercised.

Is this a good deal for AMD? Nvidia CEO Jensen Huang has said that a 1 GW AI datacenter requires around $35 billion worth of its chips and systems. Nvidia sells more than just GPUs, so it's hard to estimate how much the AMD deal is really worth. "Our partnership with OpenAI is expected to deliver tens of billions of dollars in revenue for AMD while accelerating OpenAI's AI infrastructure buildout," said AMD CFO Jean Hu in the press release announcing the deal.

AMD is effectively handing over tens of billions of dollars worth of stock to generate tens of billions of dollars of revenue. We don't know how much OpenAI will be paying per GPU, but the deal likely involves some volume discounts. We also don't know what AMD's gross margin will be for these sales. This deal doesn't look like a slam dunk for AMD financially, but it does get the company's foot in the door as OpenAI embarks on an enormous buildout of AI capacity.