AMD's AI megadeals with OpenAI and Meta just cost it $1.1 billion: Chart of the Day

OpenAI ( OPAI.PVT ) and Meta ( META ) could buy 320 million AMD ( AMD ) shares for a penny apiece. That's $3.2 million for stock worth about $155 billion, and AMD just got its first bill for the deal.

The chipmaker beat Wall Street's estimates on Tuesday, with record data center sales of about $8.5 billion, nearly double a year ago, and a forecast of about $17 billion in fourth quarter revenue. The stock jumped as much as 9% in after-hours trading after closing at $484 before turning lower in premarket trading.

But tucked into the results was a $1.1 billion charge tied to that penny promise, which comes in the form of warrants — contracts that let the holder buy a company's stock at a set price. The charge came to $0.66 per share in the results. Last quarter, that line was zero.

Here's the deal: OpenAI and Meta each agreed to buy AMD chips for data centers drawing up to 6 gigawatts. That's about five DeLoreans' worth of the 1.21 gigawatts Doc Brown needed to time travel in the 1985 movie "Back to the Future."

In return, each can buy up to 160 million shares at a penny. The shares unlock as the chips ship, and the final batch requires AMD's stock to hit $600, according to company filings for OpenAI and Meta . Fully unlocked, the two would own about 16% of the enlarged company, by Yahoo Finance calculations. The Motley Fool ran the share-count math in October.

So why now? AMD began booking the warrants as it shipped its new MI450 chips, CFO Jean Hu said on Tuesday's call. The charge mostly reflected "the increase in our share price and the changes in the estimated probability of meeting the warrant conditions," she said. The stock rose about 21% last quarter and finished on Sept. 25 at $630, above that $600 line.

And the tab is likely to grow. Hu said she expects the charge "to increase as we and our customers progress under this agreement," with amounts swinging on AMD's stock price. Every rally and every chip shipment can add to it.

It's all on paper, though. The charges "will not affect our non-GAAP results or free cash flow ," Hu said.

AMD is stocking up for a $17 billion quarter

Meanwhile, 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, four times the largest quarterly increase since at least 2009, according to Yahoo Finance calculations from company filings.

That build came at a price. Free cash flow shrank to about $550 million, compared with the nearly $2 billion analysts expected, according to Bloomberg. Debt more than doubled to about $7 billion after an August bond sale.