AMD’s Debt Play, Explained

Key Takeaways

I want you to explain your story in simple terms and I cannot promise that I'm not going to interrupt because there's a lot going on here. So, we're we're gonna wrestle with each other. We're going to try to figure it out. But, but tell us about how AMD is acting as a backs stop for Crusoe. >> Sure. So, Crusoe is a cloud company. Um they uh rent out Nvidia chips and AMD chips. In this case, um, they are buying a pretty large, um, slug of AMD chips, and AMD is basically helping them do that by agreeing to rent those chips if Crusoe can't find any other customers for them. And so what this allowed Crusoe to do was go out and raise $300 million of debt from Goldman Sachs at a pretty low 6% interest rate because um you know the bank was sort of looking through to that AMD contract and saying okay there's basically guaranteed usage of these chips. Um, and so, you know, Crusoe was able to raise um, a good chunk of money this way. And it's, uh, very similar to something that Nvidia has done in the past, which I'm sure we can get into more. >> Now, I just want to make something clear here. So, so the the the debt that Crusoe was seeking from Goldman Sachs in the first place, that was to buy AMD chips all along. >> That That's right. It's to buy the AMD chips and the equipment that goes around them. Um, and it's also uh collateralized by the chips so that ultimately, you know, if things went south, the lenders would be able to um seize those chips and sell them or do something else with them. >> So basically, so so basically Crusoe is is saying, "Hey, we're taking out the loan to buy the chips." AMD is saying, "We know you're taking out this loan. We're going to give you the chips and uh you're going to pay us with the cash from the loan for the chips, but in the event that you can't live up to the requirements of the loan or the interest payments, we will help you rent out the chips because we know there's so much demand and we'll use that revenue essentially uh to help you pay off the loan in the worst case scenario. But this is this is the this is the whole backs stop idea [laughter] that that they're helping them with. >> Yeah. Basically, you know, AMD ultimately is trying to um grow sales and grow usage of their chips and um you know, a lot of that will probably come from smaller companies and it's kind of hard sometimes to predict um where exactly that demand is going to come from. you know, these companies are not signing five-year um takepay contracts um like some of the big uh cloud companies like Microsoft might be. And so um that's also part of this idea is that by AMD sort of guaranteeing um the usage in the end that allows Crusoe to feel a bit more um liberty to go out and you know try to sell these to smaller customers um that might not be sort of the the obvious big customers um for these chips to start. >> So where is AMD taking on risk in this equation? Yeah, the main risk for AMD is, you know, if Crusoe can't really find other um people to rent these chips, then AMD will, you know, be stuck with uh, you know, a larger cloud bill to Crusoe than maybe it would have wanted. Um, but you know, ultimately that's in service of uh sales. So, you know, it is sort of uh uh circular in that way. And it's even though you know AMD bears some risk around the usage you know they are getting to book a sale from this >> right more what I meant was I mean the way I was thinking about this was that I mean AMD would when you say cloud bill just just unpack that for cloud bill in what sense? >> Oh in that they would be um buying renting these chips through Cruso's cloud business >> through Okay. Okay. Got it. And so this is essentially I mean this is AMD saying yeah you've left us with all this extra work that we need to do. But I mean then the fundamental question is well how much demand is there for AMD's chips? And I mean that that is sort of the next question is what do we know about demand there? Is the demand as uh high as you know we'll get to Nvidia in a second but you know Nvidia's chips everyone wants them. Do they want AMD in the same way? >> Yeah it's a great question. I think it's a little bit hard to tell. First of all, because AMD doesn't exactly break out um AI chip sales from the rest of its data center category. Um you know, the CEO, Lisa Sue, has said she wants to reach uh tens of billions of dollars in revenue from AI chip sales by next year. Um and anecdotally just over the past year I think with the growth of AI and the constraints around the supply of Nvidia chips you have seen companies like Meta XAI um turning to AMD chips maybe not at the same scale as they're turning to Nvidia chips but um they're at least one option in the toolkit and of course OpenAI also um committed to uh using up to six gawatt which is quite a um 6 gawatts of power of AMD chips over time in exchange for a pretty large stake in the company. So that's another potential source of growth for AMD. >> Now the the last question I want to ask you is with Nvidia, we've talked about them leveraging a similar type of playbook. Do you see other companies employing this exact playbook as well? other chip companies, other cloud companies. Where else could you see this playing out? >> Yeah, I mean, one to watch obviously would be Google um with what it's doing with TPUs. Um I could easily see the same playbook being used to help um cloud companies that are renting out TPUs like uh Fluid Stack for instance uh go out and raise debt. um you know that's sort of the main one that comes to mind but obviously um there are other big tech companies making their own chips so seems like there's plenty of room to get creative here >> right well Miles I want to thank you for coming on that is Miles Kupa our AI and finance reporter here at the information