How Are They Going to Pay for All This?

By: Steve Sosnick, Chief Strategist

There are some days when the news flow is relatively light, others when it seems to be delivered through a fire hose. Early risers in the US awoke to the news of two global leadership changes (Japan and France), a new high in Bitcoin, and a teaser from Tesla (TSLA). We then learned about huge deals involving Comerica (CMA) and AMD. Both rallied sharply, even if it is only clear how one of them will be paid.

CMA is being acquired by Fifth Third (FITB) in an all-stock deal¹ to form a super-regional bank that will be the country’s 9^th-largest. It is not unusual to see a modest decline in the stock of an acquirer in an all-stock merger, but we see FITB trading roughly flat. That is allowing CMA holders to enjoy the vast majority of the deal’s premium today with the stock rising by about 15%[i]. This is good news for the banking sector overall, since this can be seen as a prelude to a wave of consolidation facilitated by a promised climate of lighter regulatory scrutiny.

Yet the biggest story came a few minutes later, when OpenAI and AMD announced a strategic partnership² that involves over $100 billion of AMD chip purchases by OpenAI, with OpenAI receiving warrants for as many as 160 million shares³. This is understandably being treated as transformative by AMD shareholders. The stock soared as much as 38% this morning and maintained gains of more than 25% throughout the morning.

That rally means that AMD’s value has increased by roughly the full amount of the proposed sales over the life of the deal and is another reminder of how enthusiastic the market is about the big spending required for the buildout of artificial intelligence-related infrastructure. At this point, once again, we have to ask an inconvenient question. How is OpenAI going to pay for all this?

Investors have been willing to reward companies for simply spending money on AI investments.  It has certainly benefited Nvidia (NVDA), the premier chip supplier to the AI buildout, and other chip stocks like AMD and Broadcom (AVGO) have also seen huge gains. When the money is being spent by companies like Microsoft (MSFT), Meta Platforms (META), and Alphabet (GOOG, GOOGL), all of which generate immense profits and cash flow, we can wonder about the long-term return on those investments but remain unconcerned about their ability to write the checks. 

When it comes to OpenAI, however, we must ask the uncomfortable question about is from where the necessary funds are going to arise. In the wake of the recent $300 billion deal between Oracle and OpenAI, we wrote about the parallels between the data center buildout and the late ‘90s rush to build bandwidth for the internet rollout. The bandwidth proved necessary, but it claimed the corporate lives of companies like Global Crossing and Northern Telecom, and exposed the frauds underlying Enron and Worldcom. I am not casting similar aspersions upon OpenAI or any of the companies with whom it is dealing, but it does seem fair to wonder whether the market is rewarding those companies for deals that might not eventually come to fruition.

Bear in mind that OpenAI has acknowledged annualized revenues of $12 billion so far this year, yet it has commitments to spend at least $500 billion over the coming years. That will require either immense, parabolic revenue growth and/or the market’s willingness to invest billions in obligations of a cash-burning company that already sports a $500 billion private market valuation. It could come to pass, but it certainly seems to require some sober analysis.

Remember, just a few weeks ago, OpenAI’s CEO cautioned⁴ that we are in an AI bubble. If he asks that question, shouldn’t we? And wouldn’t it make sense to maximize your impact now if you thought we were in the midst of a bubble that could explode later? No matter how enthusiastic one might be about the prospects for artificial intelligence, it is fair, if not incumbent, upon investors to ask inconvenient questions.

Originally posted on October 6, 2025 on Traders’ Insight

FOOTNOTES AND SOURCES:

[i] It is important to remember some of the typical behavior we see around mergers. For starters, it is normal for the acquiree’s stock to trade somewhat below the full value of the announced deal. Mergers don’t close instantly, so at a minimum the discount reflects the time value of money over the period until closing. There can be a further discount if there are regulatory concerns about approval, though we can sometimes see the acquiree trade at a premium if there is a hope that a better offer will arise. In all-stock deals, the acquirer often trades lower on concerns about the acquirer needing to issue more stock to satisfy the merger, and those concerns increase if the merger premium means that it will result in dilution. The CMA/FITB merger is not seen as dilutive, hence the solid performance of FITB, and thus CMA.

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