AMD (AMD) stock rose nearly 24% on Monday after the company announced a partnership with OpenAI, which could give the ChatGPT maker a 10% stake in the semiconductor giant. OpenAI will deploy six gigawatts of AMD’s Instinct graphics processing units (GPU) over several years, starting with a 1-gigawatt rollout in late 2026.
The agreement positions AMD as a key strategic partner for OpenAI, representing one of the largest GPU deployment deals in the AI industry. As part of the deal, AMD issued an OpenAI warrant for up to 160 million shares, with the vesting tied to the size of the offering and the performance of AMD’s stock price.
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OpenAI President Greg Brockman emphasized the importance of the partnership, noting that the company currently lacks the computing power needed to launch many of ChatGPT’s revenue-generating features.
CEO Lisa Su highlighted that AI is still on a 10-year growth trajectory, which requires foundational partnerships to bring the best technologies to market. The deal comes just two weeks after OpenAI’s $100 billion agreement with Nvidia (NVDA), bringing OpenAI’s total infrastructure spending to nearly $1 trillion.
While Nvidia stock fell 1% on the news, the AMD partnership helps diversify OpenAI’s supply chain and reduce reliance on a single vendor. For AMD stock, the deal validates Instinct’s next-gen roadmap after years of lagging behind Nvidia in AI accelerators. CFO Jan Ho expects the partnership to generate tens of billions of dollars in revenue with a significant increase in earnings per share.
AMD is making big strides in artificial intelligence, and executives are confident that the company can become a major player in the GPU market. The chipmaker recently reported revenue of $7.7 billion in the second quarter, a 32% increase year over year, with strong momentum continuing into the third quarter.
Its data center business reached $3.2 billion in the second quarter despite its inability to sell MI308 chips to China. This setback forced AMD to write down $800 million in inventory. Even with these headwinds, the company saw record server CPU sales and expects double-digit sequential growth in the third quarter, driven by the new MI350 chip.
AMD is taking a deliberate, multi-generational approach to the AI accelerator market. The strategy reflects what has worked on the CPU side, where AMD has gradually built competitiveness over several generations. The MI300 and MI325 are focused on inference workloads, where the AMD chipset architecture offers more memory than competitors. The MI355 adds training capabilities, and next year’s MI450 represents what executives call their “no asterisk” generation, targeting leadership performance across all AI workloads.
AMD has more than 40 active sovereign AI involvements globally, which executives see as incremental growth beyond customers at scale. The chipmaker is working closely with the US government on licensing to address this multi-billion-dollar opportunity. AMD already counts seven of the top ten AI spenders as customers and expects that number to grow.
On the margin, AMD’s data center GPU business runs slightly below the company average as the company prioritizes market share in this hyper-growth market. Executives are confident that profit margins will expand over time as the business expands. It focuses on maximizing gross profit margin in dollars rather than percentages.
AMD believes that programmable GPU infrastructure will capture 75% to 80% of the AI market, with custom ASICs serving the rest. The company sees AI driving unexpected demand even for traditional CPUs as companies deploy more sophisticated applications.
Analysts tracking AMD stock’s revenue expect it to increase from $25.8 billion in 2024 to $68.5 billion in 2028. In comparison, adjusted earnings are expected to expand from $3.31 per share to $11.62 per share in the period. If AMD stock is priced at 30 times forward earnings, a reasonable valuation, it could rise 66% over the next 30 months.
Of the 44 analysts covering AMD stock, 28 recommend a “strong buy,” two recommend a “moderate buy,” and 14 recommend a “hold.” The average price target for AMD stock is $194.64, below the current price target of $223. However, the high $300 target set by Barclays gives the stock a good 35% to run.
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On the date of publication, Aditya Raghunath had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. This article was originally published on parchart.com
