Advanced Micro Devices (AMD) has been fighting hard to close the gap with Nvidia (NVDA) in the artificial intelligence chip race. For a long time, that gap looked almost impossible to bridge. Until now.
AMD and Meta (META) just announced a sweeping, multi-year agreement to deploy six gigawatts of AMD Instinct graphics processing units across Meta's global AI infrastructure. AMD stock jumped 8.8% on the news, as the deal could be a turning point for the chipmaker.
Why This AI Chip Partnership Changes the Game
To understand why this deal matters, you need to understand the AI infrastructure race and how massive it has become.
Meta CEO Mark Zuckerberg committed to up to $135 billion in capital expenditures in 2026 as it tries to keep pace with OpenAI, Alphabet (GOOG) (GOOGL), and Anthropic in the global AI race. The company has plans for 30 data centers, 26 of them in the U.S.
That's where AMD comes in.
Under this agreement, Meta is expected to deploy six gigawatts of AMD Instinct GPUs across multiple product generations. The first gigawatt deployment is committed, with shipments scheduled to begin in the second half of 2026.
Here's the key detail: the first deployment will use a custom AMD Instinct GPU based on its MI450 architecture, optimized specifically for Meta's workloads.
This is the first time AMD has built a custom GPU of this kind. AMD CEO Lisa Su described the process as "starting with the workload first," not the chip, indicating a meaningful shift in how AMD approaches its biggest customers.
AMD CFO Jean Hu said the deal is expected to generate "significant double-digit billions of dollars per gigawatt" in data center AI revenue. At six gigawatts, you're looking at a deal potentially worth well over $100 billion over its lifetime.
Chip analyst Ben Bajarin of Creative Strategies, who was briefed on the deal, told CNBC the agreement is worth "tens of billions of dollars over at least four years."
AMD Stock: The Warrant Structure and What It Means for Investors
The deal also includes a performance-based warrant that gives Meta the option to acquire up to 160 million AMD shares, roughly 10% of the company. That sounds alarming at first, as giving away 10% of your equity is a big move.
But the structure is important to understand. The warrant doesn't vest all at once. It's tied to performance milestones.
- The first tranche vests only when AMD ships the initial one gigawatt of Instinct GPUs.
- Additional tranches vest as Meta's purchases scale toward six gigawatts.
- Moreover, vesting is also tied to AMD hitting specific stock price thresholds, and the final tranche requires AMD to reach $600 per share.
Su called the structure a "win-win" for shareholders. Hu said the deal is "accretive to our non-GAAP earnings per share." In plain terms, AMD's bottom line gets better, not worse, even after accounting for the warrants.
This deal is part of a broader pattern. In October, AMD signed a similar agreement with OpenAI, also structured around 160 million warrants tied to deployment and stock price benchmarks. Two of the biggest names in AI, in just a few months, have made AMD their strategic partner.
AMD vs. Nvidia
Let's be direct about where AMD stands. Nvidia still controls roughly 90% of the AI chip market and is valued at $4.66 trillion. Compared with AMD, the market cap is much lower at $350 billion. But momentum is shifting.
AMD reported fourth-quarter sales growth of 34% year-over-year (YoY) to $10.27 billion. The company's data center AI business has been growing rapidly, and AMD has set a long-term target of exceeding $20 in annual earnings per share within the next three to five years.
The Meta deal didn't exist when AMD set that target.
"We believe the scale of this deployment will further strengthen our AI platforms and expand opportunities across both existing and new customers," Su said on the company's special investor call.
For investors watching AMD from the sidelines, that might be precisely the signal they've been waiting for.
Out of the 46 analysts covering AMD stock, 31 recommend “Strong Buy,” two recommend “Moderate Buy,” and 13 recommend “Hold.” The average AMD stock price target is $286.90, above the current price of about $214.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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