AMD Q1 26 – Money for Nothing

Money for nothing and your chips for free.

• Great results propel AMD to new heights, which means that AMD has now cleared the first two price hurdles where OpenAI & Meta can exercise their options and get 1GW of silicon from AMD almost for free.
• AMD reported Q1 26 revenues / Adj-EPS of $10.3bn / $1.37, nicely ahead of estimates of $9.89bn / $1.28 as data centre GPUs and CPUs registered more demand than AMD could handle.
• Demand for larger models and models that spend more time “thinking” makes GPU management more complicated, which in turn means that more CPUs are needed to manage them.
• This, combined with the ongoing strong demand for its GPUs, is what led the company to upgrade its forecasts yet again.
• Data centre CPU demand is now expected to grow 35% YoY until 2030, up from 18% just a few months ago, while AMD continued to be unable to meet the demand for its GPUs.
• Hence, Q2 26 guidance has gone up again with the company forecasting revenues of $10.9bn – $11.5bn ($11.2bn) nicely ahead of consensus of $10.5bn.
• This, combined with the long-term upgrade to expectations, has driven the shares to new highs, where they are now trading at $413 as of yesterday afternoon.
• This is highly significant because it means that the deals that AMD struck with OpenAI and subsequently Meta are starting to become interesting.
• This is an ingenious financial arrangement where a promise to buy chips goes hand in hand with a warrant with a strike price of $0.01 that the chip purchaser can exercise under certain conditions.
• The messaging is all about how AMD’s customers want to take a long-term equity stake in the supplier upon whom they are partially dependent, but I don’t believe a word of it.
• What this is really about is getting AMD shareholders and the marginal buyer of AMD shares to pay for the silicon, which OpenAI and Meta will get for virtually nothing.
• A warrant is the option, but not the obligation, to purchase a new share issued by the company at the strike price, which in this case is $0.01 per share (i.e. free) within the next 5 years.
• AMD has issued 160m warrants each to OpenAI and Meta, which, if all exercised, will mean that existing shareholders will be diluted by 20%.
• However, the warrants will only be exercisable upon the deployment of each GW of capacity and should the share price obtain certain levels.
• AMD would not say what the levels are, but it did say that the last tranche is exercisable when the whole 6GW is deployed and the share price is at or above $600 per share.
• Based on this, I would guess at 4 increments of $80 per share, with the first tranche going at something like $280 and then $360 and so on.
• With AMD’s share price at $413, the 2026 and 2027 tranches of warrants are now exercisable, and I suspect that both OpenAI and Meta will exercise their warrants and sell their shares in the market to pay for the silicon they are buying.
• This is a fantastic deal for both OpenAI and Meta because if all goes well, AMD shareholders pay for part of the deal through 20% dilution, with the other part being paid for by marginal buyers of AMD shares whose purchases drive the price beyond the required thresholds.
• This deal also works reasonably well if the AI bubble pops because AMD’s share price will retreat below the thresholds, and OpenAI and Meta will no longer be under so much pressure to invest everything that it has in trying to keep up with OpenAI, Anthropic, Google, etc.
• This is why this deal (and all of the huge deals announced) are conditional, and there is no penalty on either side for not fulfilling the terms of the arrangement, as we saw when OpenAI’s $100bn deal with Nvidia collapsed. 
• The real losers here are AMD shareholders as they pay through dilution, but as long as the share price keeps on going up, they won’t care that much.
• It stops or hits the buffers like Nvidia has, then there are likely to be real problems.
• The problem is that relative to its peers and Nvidia, this company is very expensive, and there are many more attractive places to be at the moment.
• One of these is Samsung, which I bought for the recovery and am staying for the ride, and another is Qualcomm, which is at last beginning to see some market recognition for the life it has built for itself after smartphones and after Apple.