AMD Takes $1.1 Billion Charge on OpenAI and Meta Warrants

AMD just booked a $1.1 billion charge for the penny-a-share warrants it handed OpenAI and Meta — the first real bill from the AI megadeals announced earlier this year, and CFO Jean Hu says it's only going to get bigger.

The charge works out to $0.66 per share in results published Tuesday. Last quarter, that line was zero. The timing isn't random: AMD began booking the warrants as it shipped its new MI450 chips.

What's in the deal?

The structure is straightforward, if expensive on paper. OpenAI and Meta each committed to buy AMD chips for data centers drawing up to 6 gigawatts — for context, that's roughly five times the 1.21 gigawatts Doc Brown needed in "Back to the Future."

In exchange, each company can buy up to 160 million AMD shares at one cent apiece. That's a combined $3.2 million for stock worth about $155 billion at current prices. The shares unlock in tranches as chips ship, and the final batch only vests if AMD's stock hits $600. Fully unlocked, the two would own about 16% of the enlarged company, by Yahoo Finance's calculations.

Why the charge hit now

Two things moved the accounting line. First, AMD's share price: the stock rose about 21% last quarter and closed at $630 on Sept. 25, clearing that $600 threshold. Second, the odds of the warrants actually paying out improved.

The charge "mostly reflected the increase in our share price and the changes in the estimated probability of meeting the warrant conditions," Hu said on Tuesday's earnings call.

Don't expect this to be a one-off. Hu said she expects the charge "to increase as we and our customers progress under this agreement," and the amounts will swing with AMD's stock price. Every rally and every chip shipment can add to the tab.

It's paper money, though. The charges "will not affect our non-GAAP results or free cash flow," Hu said — which matters for how you read the headline numbers, since AMD's reported GAAP profit takes the hit while the metrics most analysts track don't.

The quarter underneath the charge

Strip out the warrant noise and the quarter was strong. AMD beat Wall Street's estimates, posting record data center sales of about $8.5 billion — nearly double a year ago — and guiding to roughly $17 billion in fourth-quarter revenue.

The market's reaction whipsawed. Shares jumped as much as 9% in after-hours trading, after closing at $484, then turned lower in premarket trading.

AMD is stocking the shelves

Beneath the results, AMD is loading up for what it expects to be its biggest quarter ever. Inventory jumped about $3 billion to a record $11.5 billion. That's four times the largest quarterly increase since at least 2009, according to Yahoo Finance's calculations from company filings.

The build came at a cost:

• Free cash flow shrank to about $550 million, versus the nearly $2 billion analysts expected, per Bloomberg.
• Debt more than doubled to about $7 billion, after an August bond sale.

So the picture for practitioners: AMD is financing a massive inventory ramp ahead of its largest-ever quarter, giving away roughly 16% of the company's enlarged share base in exchange for guaranteed hyperscaler demand, and absorbing paper charges that will grow with its own stock price. If the MI450 shipments keep scaling, the warrant line keeps climbing. If they stall, AMD has an $11.5 billion inventory pile to work through.