AMD shares soared 12%. Meta will buy AI chips from it and may become its shareholder

Shares of microchip maker AMD soared 12% on the premarket on February 24 - after the company signed a multi-year contract with Meta to supply chips for artificial intelligence. As part of the agreement, Meta will purchase AMD products totaling more than 6 gigawatts of capacity. This will be part of a major expansion of Meta's AI infrastructure, Yahoo Finance emphasizes.

The first graphics chips (GPUs) of AMD MI450 line will be deployed in the second half of the year as part of rack-mounted systems of Meta-Helios data centers. Meta also plans to purchase a large batch of central processing units (CPUs), including the Venice chip and the next generation - Verano.

Also, under the terms of the agreement, AMD will issue Meta warrants for its securities - up to 160 million common shares, which will be transferred in stages when certain goals are achieved. The first tranche of shares will be unlocked when AMD ships chips totaling 1 gigawatt. Meta will receive the full package only if AMD's stock price rises to $600, Bloomberg writes. For comparison: on Monday, February 23, trading closed at $196.

"We expect this partnership to deliver significant revenue growth over the next several years and increase our earnings per share, representing an important step in realizing our ambitious financial model," said AMD CFO Jin Hu. She also emphasized that the deal's performance-based structure closely aligns both companies' interests in long-term value creation.

The announcement of the deal was a critical event for AMD, which is still far behind semiconductor market leader Nvidia, notes CNBC. Nvidia now controls about 90% of the AI chip market with a capitalization of $4.66 trillion, while AMD is valued at $320 billion. The deal was a triumph for AMD in its attempt to challenge Nvidia in the market for graphics processors - microchips that provide a boom in artificial intelligence, according to The Wall Street Journal.

At the same time, the agreement between AMD and Meta in many respects copies AMD's agreement with OpenAI, concluded last year, Reuters adds. Analysts call such structures "circular financing": Meta invests in a supplier and then uses the same funds (or influence) to purchase its products.

Meta, in turn, is actively diversifying its suppliers in order not to depend on a single player, Yahoo Finance points out. The deal with AMD is notable because Meta is switching to custom chips designed specifically for its tasks, the WSJ said. Meta intends to use these chips primarily for inference - the process by which an AI model responds to user queries on Facebook, Instagram and WhatsApp, the newspaper noted. In addition, the company also plans to buy a large batch of central processing units (CPUs) from AMD, including the Venice chip and the next generation Verano.

Last week, Meta announced a multi-year agreement with Nvidia to supply millions of Blackwell and Rubin series GPUs. Meta will also be the first site for a large-scale deployment of servers based on Nvidia Grace processors. Meta is also developing its own processors and, according to Informative, has been in talks with Google to use its Tensor Processing Units (TPUs) in its data centers by 2027, the WSJ writes.

"Meta is in a special position: the company controls the entire technology stack and can leverage any computing resources it wants," said analyst Ben Bajarin of Creative Strategies. - According to him, this deal only confirms the shortage of computing power in the market, so such agreements will become more and more common"(quoted by CNBC).

In total, Meta plans to spend more than $135 billion during 2026 to build data centers and purchase chips, notes Yahoo Finance. Reuters estimates that the capital expenditures of the four giants (Alphabet, Microsoft, Amazon and Meta) this year will be at least $630 billion, most of which will go to data centers and chips.

While AMD shares soared 12%, Meta securities were cheaper by 0.2% in Tuesday's premarket.

Wall Street's consensus on AMD stock remains strongly positive: of the 57 analysts tracking the company's stock, 46 recommend buying, and another 11 recommend holding. There are no "sell" recommendations.

At the same time, optimism on Meta shares looks even more consolidated. Out of 72 analysts, 66 advise to buy the securities, and the remaining six recommend to hold.

This article was AI-translated and verified by a human editor