Meta deal ‘wildly concerning’ for AMD stock, says Rick Heitzmann

Advanced Micro Devices (NASDAQ: AMD) pushed aggressively to the upside on Tuesday as the chipmaker signed a landmark, multi-year agreement with Meta Platforms (NASDAQ: META).

The deal – valued at an estimated $60 billion at least – will see Facebook-parent deploy a massive 6 gigawatts of AI compute power using AMD’s next-gen Instinct MI450 accelerators.

To sweeten the pot, the multinational also issued META performance-based warrants for up to 160 million shares, which translates to about a 10% stake.

And while investors cheered the announcement on Feb. 24 – FirstMark’s founder Rick Heitzmann finds it “concerning” for those invested in AMD stock.

Why Heitzmann cautions against chasing momentum in AMD stock

Heitzmann’s primary concern centers on what he described as “circular commerce,” a phenomenon that evokes haunting memories of the 1999 dot-com bubble.

In these arrangements, the lines between a customer, a lender, and a partner are dangerously blurred.

When a company gives away a huge chunk of its equity to secure sales, the quality of that revenue becomes questionable, Heitzmann told CNBC in a post-announcement interview.

“I'm promising and no one's really sure how much is a promise, how much is a commitment, when does this happen, how are these options earned,” he added.

For Rick Heitzmann, this lack of transparency is “wildly concerning,” since it leaves AMD shareholders guessing the true health of the order book and the actual cost of acquiring these hyperscale clients.

Why circular commerce transactions could hurt AMD shares

Beyond dilution risk, Heitzmann remains concerned because Advanced Micro Devices is basically offering a loan for Meta Platforms to buy its products.

But if the AI cycle slows down, “this whole arrangement could burst – leaving everybody holding the bag,” as the artificial demand created by these complex financial maneuvers evaporates.

Investors should also note that it’s not the first time for AMD to sign such an agreement. Its previous deal with OpenAI had a similar structure as well.

In fact, the ChatGPT firm and META are now positioned to eventually own some 20% of AMD, which makes the semiconductor stock a bit less attractive to own at current levels.

How to play Advanced Micro Devices following Meta deal

Ultimately, Heitzmann views these equity-linked deals as a sign of a market reaching a fever pitch rather than a sustainable foundation for long-term growth.

While AI disruption fears have been hurting software stocks, the issued warrants signal that chipmakers like AMD may be forced to give away their future upside just to beat Nvidia’s dominance.

By offering Meta Platforms a sizable stake, the multinational has tied its fate to a single customer’s deployment schedule, which Rick Heitzmann believes is far less certain than AMD stock’s recent price action suggests.  

For cautious investors, the seemingly exciting headline numbers of the META deal may be secondary to structural risks lurking in the fine print.

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