Just two weeks after its competitor Nvidia struck a groundbreaking AI deal with ChatGPT owner OpenAI, AI chipmaker Advanced Micro Devices followed suit with a significant announcement.
On Monday, chipmaker Advanced Micro Devices (AMD 23.61%) revealed a major artificial intelligence (AI) strategic partnership with OpenAI, the developer renowned for its ChatGPT chatbot. This news not only propelled shares of AMD up an impressive 23.7%, but it also provided a boost to numerous other AI stocks and positively impacted the overall market.
AMD’s announcement came precisely two weeks after its rival Nvidia (NVDA -1.10%), whose graphics processing units (GPUs) are dominant in the AI chip market, unveiled a substantial deal with OpenAI.
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Understanding the Strategic Partnership between Advanced Micro Devices and OpenAI
The strategic partnership between AMD and OpenAI entails AMD supplying an impressive 6 gigawatts of its Instinct series GPUs to enhance OpenAI’s next-generation AI infrastructure. The initial deployment of 1 gigawatt using AMD Instinct MI450 GPUs is scheduled to commence in the latter half of 2026, aligning with the timeline of the Nvidia-OpenAI agreement.
In a significant move for AMD, the company has issued OpenAI a warrant for up to 160 million shares of AMD common stock, designed to vest as specific milestones are achieved, as stated in the press release. With roughly 1.62 billion shares outstanding, this 160 million shares represents around 10% of the total shares.
For context, prior to the announcement, AMD had a market capitalization close to $267 billion, making 10% of that approximately $26.7 billion.
Contextualizing the Significance of 6 Gigawatts in AI
Six gigawatts equates to an immense amount of computing power. To help understand the sheer scale of 6 gigawatts, consider the following statistics:
- The average power demand of New York City hovers around 6.5 gigawatts, with peak summer demand reaching approximately 10 to 11 gigawatts.
- Six large-scale nuclear reactors can generate about 6 gigawatts of power.
What Was Included in the Nvidia-OpenAI AI Deal?
On September 27, Nvidia unveiled its substantial deal with OpenAI, highlighting the following key points of this strategic collaboration:
- The companies intend to deploy a minimum of 10 gigawatts of Nvidia systems to support OpenAI’s next-generation AI infrastructure.
- The announcement indicated that these systems will be utilized to “train and run [OpenAI’s] next generation of models on the path to deploying superintelligence.” [Emphasis mine.]
- The first phase is projected to be operational in the second half of 2026, utilizing the Nvidia Vera Rubin platform.
- Nvidia plans to invest up to $100 billion into OpenAI as these new systems are rolled out.
What Are the Broader Implications for the AI Industry?
This partnership appears to be mutually beneficial for both AMD and OpenAI. OpenAI gains access to a substantial supply of AI-enabling GPUs over several years, which is crucial given the high demand and limited supply of GPUs. This scarcity is particularly pronounced for Nvidia’s GPUs, though AMD’s supply is also constrained to some degree.
From AMD’s perspective, this deal secures a major multiyear client for its GPUs, and it anticipates a significant influx of capital as OpenAI acquires up to 10% of AMD’s shares. According to CFO Jean Hu, the partnership “is expected to generate tens of billions of dollars in revenue for AMD.” She also noted that it is “anticipated to be highly accretive to AMD’s non-GAAP [generally accepted accounting principles] earnings per share.”
When considered alongside the monumental Nvidia-OpenAI deal and other significant agreements in the AI space, the implications for the broader AI market are optimistic.
In my opinion, the primary takeaway is that these enormous AI chip and infrastructure agreements will likely expedite the transition from generative AI towards achieving artificial general intelligence (AGI) and eventually artificial superintelligence (ASI), as I discussed following the announcement of the Nvidia-OpenAI deal. Both Nvidia and AMD stand to gain tremendously from this competitive race, as companies strive to procure even more of their AI-enabling GPUs.
Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
