TLDR
- AMD stock jumped 40.8% over three days, the best performance since April 2016
- OpenAI committed to buying 6 gigawatts of AMD chips and received warrants for up to 160 million shares
- The deal gives OpenAI a 10% stake in AMD with vesting tied to deployment milestones
- Analysts believe the partnership validates AMD’s AI chips and could attract other major customers
- AMD closed as the S&P 500’s top performer on Wednesday with a 9.8% gain
AMD stock is having a moment. The chipmaker posted its best three-day run in nearly a decade after announcing a deal with OpenAI that has Wall Street rethinking the AI chip landscape.
The stock climbed 40.8% across the three sessions ending Wednesday. That marks AMD’s strongest three-day stretch since a 52.3% run in April 2016.
The rally started Monday when AMD revealed the OpenAI partnership. The AI company committed to deploying 6 gigawatts of AMD chips over multiple years.
OpenAI received warrants to purchase up to 160 million AMD shares. The warrants vest based on deployment targets and market milestones.
The arrangement effectively gives OpenAI a 10% stake in AMD. It’s an unusual structure that ties OpenAI’s equity position to how quickly it actually uses the chips.
Most of the gains came on Monday’s announcement. But the stock kept climbing through Wednesday when it gained another 9.8%.
That made AMD the best performer on the S&P 500 for the day.
The MI450 Ramp Becomes Everything
Mizuho analyst Jordan Klein says AMD’s current financials are beside the point now. “Their actual numbers do not matter anymore,” he wrote.
The focus has shifted to how fast AMD can ramp production of its MI450 chips. That’s the next-generation chip line that will fulfill the OpenAI order.
Klein believes long-only fund managers have been slow to chase AMD’s rally. They’ve watched from the sidelines with some skepticism.
But he sees more catalysts coming. AMD has an investor day scheduled for November that could pack more bullish news.
The chip order itself is massive. Six gigawatts represents a huge commitment from OpenAI.
The deal includes AMD’s upcoming MI450 series chips. Those haven’t even launched yet.
Other AI Companies May Follow
The OpenAI deal could change how big tech companies view AMD as a chip supplier. OpenAI likely wants to diversify away from relying solely on Nvidia.
There’s also a capacity question. Nvidia might not be able to provide all the chips OpenAI needs for its growth plans.
Gimme Credit analyst Dave Novosel thinks the partnership sends a message. “Obviously OpenAI thinks very highly of the Advanced Micro chips, possibly prompting others to use AMD GPUs,” he wrote.
That validation from one of the most prominent AI companies could matter. Other big players might take a fresh look at AMD’s offerings.
The AI trade showed renewed strength Wednesday. Stocks in the sector had wobbled Tuesday after a report about Oracle’s margins on Nvidia chip deployments.
Those concerns faded Wednesday. Oracle and Nvidia both gained about 2%.
AMD’s financial metrics show the company trading at stretched valuations. The P/E ratio sits at 130.79, well above its historical median of 102.01.
The price-to-sales ratio reached 12.56. That’s close to the one-year high.
Technical indicators show the stock in overbought territory. The RSI reading hit 81.16.
Analysts set an average price target of $216.74 for AMD shares. Institutional investors hold 64.87% of the company.
AMD posted revenue of $29.6 billion over the trailing twelve months. The company has grown sales at a 5.6% rate over the past three years.
The balance sheet looks solid with a current ratio of 2.49 and a debt-to-equity ratio of just 0.07. AMD’s market cap now stands at roughly $369.31 billion.
Eight insiders sold shares over the past three months. That’s worth watching even as the stock rallies.
The warrant structure means OpenAI’s ownership only materializes if specific milestones are hit. Those include deployment targets and market performance goals for AMD stock.
