Advanced Micro Devices (AMD) reported a $1.07 billion non-cash charge in the third quarter, tied to warrants it granted to two major AI customers: OpenAI and Meta. The charge, which amounts to 66 cents per share, is the accounting cost of a strategy that aims to lock in multi-year chip supply deals by offering customers the right to buy AMD shares in the future.
Warrants are financial instruments that give the holder the right to purchase a company's stock at a set price within a certain timeframe. In this case, AMD is using them as an incentive for large buyers to commit to long-term purchases of its AI accelerators—the specialized chips used to train and run large language models. Instead of simply discounting the price of each chip, AMD can offer potential equity upside to customers, which can be more attractive and helps secure guaranteed demand.
Why AMD is doing this
The AI chip market is booming, but it's also volatile. Demand can swing quickly, and big buyers like OpenAI and Meta want assurance that they'll have enough supply to meet their own ambitious plans. By offering warrants, AMD can sweeten the deal without slashing prices, which helps the company plan its manufacturing capacity and scale its data-center business.
This approach is not unique to AMD. In the tech industry, companies sometimes use equity incentives to align long-term partnerships. But the accounting treatment can be complex. Under accounting rules, AMD must recognize the value of these warrants as an expense over time, even though no cash changes hands. That's why the company took a $1.07 billion non-cash charge in the third quarter.
AMD's CFO, Jean Hu, explained that the dilution from these warrants would begin once shipment and other commercial conditions are met, with more clarity expected in 2027. In other words, the full impact on AMD's share count will become clearer over the next few years as the deals progress.
What it means for investors
For investors, this development adds a new layer to AMD's AI story. On one hand, securing long-term commitments from OpenAI and Meta is a positive sign for AMD's revenue visibility. It suggests that these major players are confident in AMD's chips, which could help the company compete with Nvidia, the dominant player in AI accelerators.
However, the warrant charge also introduces a new variable. Reported margins and earnings can now move for reasons that have little to do with day-to-day chip demand. The $1.07 billion charge is a non-cash item, so it doesn't affect AMD's cash flow, but it does reduce reported net income and earnings per share (EPS).
More importantly, if the warrants are exercised, AMD will issue new shares, which dilutes existing shareholders. Even if total profit grows, a higher share count means lower EPS, which can weigh on the company's valuation multiples. Investors will need to track not just how many accelerators AMD ships, but also the timing and terms of any warrant milestones.
The bigger picture
This news comes as the AI boom continues to reshape the tech landscape. As we've noted, profits from the AI boom are flowing to chipmakers, not necessarily to the developers of AI applications. AMD's strategy of using warrants to secure demand is a sign of how competitive the chip market has become, and how companies are willing to use creative financial tools to win business.
For everyday investors, the key takeaway is to understand that AMD's reported earnings may be affected by these non-cash charges and potential future dilution. It's important to look beyond the headline numbers and consider the underlying business fundamentals, such as the strength of AMD's AI chip lineup and its ability to execute on these long-term deals.
As the AI infrastructure buildout continues, investors will be watching how quickly AMD ramps up shipments under these commitments and how the warrant triggers translate into actual share issuance. This is a new watch item in AMD's AI story, and it could have a meaningful impact on the stock's valuation over time.
In the meantime, AMD's move highlights a broader trend: companies are increasingly using equity-linked incentives to secure strategic partnerships, and investors need to be aware of the potential dilution that can come with them. As always, it's wise to consider the full picture before making any investment decisions.
