AMD Stock Is Soaring on an OpenAI Deal, But Analysts Still Think It Can Climb 35% From Here

On Monday, AMD (AMD) shares soared close to 24% following the announcement of a new partnership with OpenAI, potentially granting the AI firm a 10% stake in the semiconductor company. The collaboration includes the deployment of six gigawatts of AMD’s Instinct graphics processing units (GPUs) over several years, starting with an initial rollout of 1 gigawatt by late 2026.

This agreement establishes AMD as a key strategic ally for OpenAI, representing one of the significant GPU deployment deals within the AI sector. As part of the arrangement, AMD has issued a warrant to OpenAI for up to 160 million shares, with vesting conditions contingent upon deployment volume and AMD’s stock performance.

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Greg Brockman, President of OpenAI, stressed the significance of this partnership, highlighting that the company currently lacks sufficient computing resources for launching many of its revenue-generating features of ChatGPT.

Lisa Su, CEO of AMD, pointed out that the growth of AI is projected to continue over the next decade, emphasizing that foundational partnerships are vital for delivering cutting-edge technologies to the market. This announcement comes shortly after OpenAI’s agreement with Nvidia (NVDA) worth $100 billion, marking OpenAI’s total infrastructure investment at approximately $1 trillion.

While Nvidia’s stock experienced a 1% dip in reaction to the news, AMD’s collaboration aids in diversifying OpenAI’s supply chain, reducing its reliance on a single vendor. For AMD, the partnership verifies the strength of its next-generation Instinct roadmap after a prolonged period of lagging behind Nvidia in the AI accelerator space. CFO Jean Hu is optimistic, predicting that this partnership could yield tens of billions in revenue and significantly enhance earnings per share.

AMD is making considerable progress in the artificial intelligence arena, with executives expressing confidence in the company’s potential to emerge as a key GPU market player. Recently, the company reported second-quarter earnings of $7.7 billion, reflecting a 32% year-over-year increase, with strong momentum expected to persist into the third quarter.

Despite setbacks in selling its MI308 chips to China, which led to an $800 million write-off in inventory, the data center segment achieved $3.2 billion in the second quarter. The company still registered record sales in server CPUs and anticipates double-digit sequential growth in the third quarter, driven by the introduction of its new MI350 chip.