Meta, AMD chip deal reignites AI circular spend debate
Speakers
Deirdre Bosa — Anchor, CNBC Tech Check
— CNBC anchor, tech reporter
Summary
- AMD is utilizing aggressive financial engineering to secure market share, granting warrants to Meta and OpenAI that vest if AMD stock hits $600 (triple current price).
- A growing trend of "circular spend" is emerging in the AI semiconductor space, where chipmakers invest in customers (or grant equity) to manufacture revenue.
- Intel's deal with SambaNova is highlighted as a "circular" arrangement where Intel capital flows to a startup that immediately flows back to Intel for infrastructure.
- The quality of these deals is under scrutiny; while they boost short-term order books, they represent "customer acquisition dressed up as a semi deal" rather than organic demand.
Trade Ideas
"If the deals underneath that confidence are built on" circular financing and warrants, the foundation of the AI build-out may be shaky. This is a "Second-Order" macro risk. If revenue growth in the semi sector is driven by vendor financing (chipmakers paying customers to buy chips) rather than end-user profitability, the sector's valuation multiples are at risk of compression when the "circular" money stops flowing. Monitor earnings quality closely; discount revenue derived from companies the chipmaker has invested in. The AI boom continues regardless of financing structure due to FOMO.
AMD is giving Meta warrants to buy up to 10% of AMD for a penny a share, "conditional on AMD's stock hitting $600." They did a "nearly identical terms with OpenAI." This creates a massive, direct "financial incentive" for the world's largest AI spenders (Meta, OpenAI) to prioritize AMD chips over Nvidia. They are now financially motivated to ensure AMD succeeds to trigger the payout. While dilutive, this locks in volume from the "Whales" of AI spending. The market rewarded this with a 7% pop. If AMD fails to deliver performance parity, Meta/OpenAI may abandon the warrants rather than cripple their own infrastructure with inferior chips.
Deirdre Bosa
Anchor/Reporter, CNBC Tech Check
Intel announced a deal with SambaNova where "Intel puts money in SambaNova, [SambaNova] spends it on Intel infrastructure." Bosa explicitly calls this "circular in nature." Unlike the AMD deal which incentivizes future growth, this looks like Intel buying its own revenue to justify its foundry build-out. Furthermore, the marquee customer is SoftBank Corp (the Telco), "not SoftBank Group... backing OpenAI," which is a "very different stamp of approval" (weaker signal). This signals a lack of organic demand for Intel's foundry services if they have to fund the startups that hire them. If SambaNova's technology becomes a breakout hit, Intel's equity stake could become valuable.
