Advanced Micro Devices Explodes on OpenAI Pact, But is AMD the Best AI Chip Stock to Buy Now?

Advanced Micro Devices (AMD) [https://www.barchart.com/quotes/AMD] stock is screaming higher in premarket action [https://www.barchart.com/stocks/pre-market-trading], up 33% on a landmark partnership with OpenAI. Under the terms of the deal – which represents one of the largest GPU deployment agreements in the artificial intelligence (AI) industry – OpenAI received warrants for up to 160 million AMD shares, potentially giving them an approximately 10% ownership stake upon meeting specific deployment milestones and share price targets.

The AMD-OpenAI deal involves deploying 6 gigawatts of AMD Instinct GPUs over multiple years, with the initial 1-gigawatt deployment of MI450 series chips scheduled to begin in the second half of 2026.

 “Our partnership with OpenAI is expected to deliver tens of billions of dollars in revenue for AMD while accelerating OpenAI’s AI infrastructure buildout,” said AMD CFO Jean Hu in a statement.

AMD STOCK SPIKE SHOCKS OPTIONS TRADERS

AMD stock is on pace to open at a new 52-week high [https://www.barchart.com/stocks/quotes/AMD/performance] this morning, and ahead of the bell, the shares are within striking distance of their March 2024 all-time highs at $227. This massive rally is set to push AMD’s 14-day Relative Strength Index (RSI) into overbought territory, with the MACD indicator pointing to a possible bullish trend shift.
www.barchart.com [https://www.barchart.com/stocks/quotes/AMD/interactive-chart]
Options traders are likely caught off-guard by today’s explosive AMD price swing, too. The options market was pricing in [https://www.barchart.com/stocks/quotes/AMD/expected-move] just a 4.24% move in Advanced Micro Devices this week, which would imply an upside range of $171.65 based on Friday’s closing price.
www.barchart.com [https://www.barchart.com/stocks/quotes/AMD/expected-move]

CAN AMD COMPETE WITH NVIDIA ON AI CHIPS?

The timing of this deal is particularly significant as it follows OpenAI's recent $100 billion commitment to Nvidia [https://www.barchart.com/story/news/34983553/nvidia-is-partnering-up-with-openai-should-you-buy-sell-or-hold-nvda-stock-here] (NVDA) [https://www.barchart.com/quotes/NVDA], suggesting a strategic move by OpenAI to diversify its chip suppliers. In fact, AMD's entry into high-end AI infrastructure through this partnership represents a direct challenge to Nvidia's dominance in the AI accelerator market. 

The global semiconductor chip market's projected growth to $1.6 trillion by 2030 provides a robust backdrop for AMD's expansion plans. Despite facing ongoing challenges from supply chain disruptions and geopolitical tensions, AMD's strategic positioning through this partnership significantly enhances its competitive stance in the evolving semiconductor landscape. 

The company's commitment to next-generation technological developments, coupled with this transformative partnership, positions AMD favorably for sustained growth in the AI infrastructure market, where spending is projected to reach $4 trillion by 2030.

IS AMD THE BEST CHIP STOCK TO BUY NOW?

Analysts rate AMD stock a “Moderate Buy” overall, and the stock is on track to vault past its average 12-month price target of $189.22 [https://www.barchart.com/stocks/quotes/AMD/analyst-ratings] this morning. The Street-high price target for AMD, via New Street Research, is $230.

Currently, the adjusted price/earnings-to-growth ratio for AMD is right around 1.37, which is a slight discount to the sector median of 1.82x. Based on this metric, AMD stock is a little cheaper than AI chip giant Broadcom (AVGO) [https://www.barchart.com/quotes/AVGO] and its PEG ratio of 1.69x, but still trades at a premium to primary rival Nvidia, currently valued at 1.16x.
_ This article was created with the support of automated content tools from our partners at Sigma.AI. Together, our financial data and AI solutions help us to deliver more informed market headline analysis to readers faster than ever. On the date of publication, Elizabeth H. Volk had a position in: AMD [https://www.barchart.com/quotes/AMD] , NVDA [https://www.barchart.com/quotes/NVDA] , AVGO [https://www.barchart.com/quotes/AVGO] . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here [https://www.barchart.com/terms#disclosure]. _