On Monday, Advanced Micro Devices (AMD) revealed a significant partnership with the prominent artificial intelligence firm, OpenAI. This collaboration has resulted in a notable surge in AMD's stock, reflecting investor optimism about the partnership's potential impact on the AI landscape.
Under the terms of this strategic alliance, OpenAI is set to deploy 6 gigawatts of AMD graphics processing units (GPUs) over multiple years and generations. The initial phase will commence in the second half of 2026, starting with 1 gigawatt of AMD Instinct MI450 Series GPUs. In addition to this deployment, AMD has granted OpenAI a warrant that allows for the purchase of up to 160 million shares of AMD stock, contingent on the achievement of specific milestones. These targets will require both an increase in AMD's stock price and the successful attainment of technical and commercial milestones by OpenAI, which could result in OpenAI acquiring approximately 10% of AMD if fully executed.
Lisa Su, AMD's Chief Executive, expressed enthusiasm about the partnership, stating, “We are thrilled to partner with OpenAI to deliver AI compute at massive scale.” She emphasized that this collaboration combines the strengths of both companies, contributing to the advancement of the global AI ecosystem.
This partnership is anticipated to generate substantial revenue for AMD, with projections indicating tens of billions of dollars in AI revenue annually. OpenAI has committed to investing hundreds of billions into building its AI infrastructure, with recent partnerships established with tech giants including Nvidia (NVDA), Oracle (ORCL), Samsung, and SK Hynix. Notably, just two weeks prior, OpenAI secured an even larger deal with AMD's competitor, Nvidia, committing to deploy at least 10 gigawatts of AI data centers powered by Nvidia processors, alongside Nvidia's plan to invest up to $100 billion in OpenAI.
Following the announcement, AMD's stock saw a dramatic increase in morning trading, soaring over 27% to reach 210.21. At one point during the session, it had surged by 37.7% to 226.71, breaking out of a seven-week consolidation pattern with a buy point at 186.65, according to IBD MarketSurge charts. This surge reflects heightened investor confidence in AMD's future prospects within the rapidly evolving AI sector.
Despite the excitement surrounding the OpenAI partnership, there are ongoing concerns about the viability of financing such a massive infrastructure expansion and whether the demand for AI services will justify the associated costs. Analysts are increasingly wary of a potential bubble in AI stocks.
Barclays analyst Tom O'Malley noted that the OpenAI deal could yield over $100 billion in total revenue for AMD over the next five years. He emphasized that this partnership demonstrates the industry's urgent need for increased computational power rather than simply taking market share from Nvidia. O'Malley maintained an "overweight" or "buy" rating on AMD stock and raised his price target from $200 to $300.
Wedbush Securities analyst Matt Bryson also commented on the partnership's significance, stating that the rapid increase in AMD's stock value is well justified given the announcement.
The news of the AMD-OpenAI partnership also positively affected the shares of related companies. Contract electronics manufacturer Sanmina (SANM), which is acquiring AMD's ZT Systems, saw its stock soar by as much as 40%, before settling at nearly 24% higher at 141.08. Additionally, shares of Taiwan Semiconductor Manufacturing (TSMC), AMD's chip foundry, experienced an uptick, rising nearly 4% to 303.51, with an earlier peak hitting an all-time high of 307.30.
Both AMD and its partners, such as Sanmina and TSMC, continue to feature prominently on the IBD Tech Leaders list, indicating their strong positioning in the tech market.
For more insights on consumer technology, software, and semiconductor stocks, follow Patrick Seitz on X at @IBD_PSeitz.
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