AMD's Stock Surged 24% on Its OpenAI Partnership and Is Near an All-Time High. Is It Still a Buy?

Advanced Micro Devices (AMD) experienced a 24% stock surge following an announced deal with OpenAI, which could involve up to a 10% stake in AMD in exchange for its chips, signaling a potential turning point for AMD's AI ambitions against dominant rival Nvidia. However, the article notes that AMD's stock is now considered expensive at 52 times forward earnings, surpassing Nvidia's valuation despite slower growth, and highlights ongoing competitive pressures, including Nvidia's new partnership with Intel in the CPU market. While the OpenAI deal is significant, the author suggests AMD still faces considerable challenges and may not represent a compelling buying opportunity at its current price.

Analysis

Advanced Micro Devices (AMD) saw a 24% stock surge following a deal with OpenAI, potentially involving up to a 10% equity stake in exchange for chips, signaling a potential turning point for its AI ambitions. However, the deal's specifics, including the vesting of the stake based on computing capacity, remain less concrete than direct chip orders.

Despite this catalyst, AMD's AI progress lags Nvidia (NVDA), whose stock is up approximately 280% since early 2024 compared to AMD's nearly 40%. AMD's data center GPUs have not yet established themselves as a viable alternative, and its stock trades at a demanding 52 times forward earnings, making it more expensive than both Nvidia and Broadcom (AVGO) despite slower growth.

The competitive landscape is intensifying, with Broadcom securing a more concrete $10 billion custom AI accelerator chip sale, partly linked to OpenAI, which the author views as more substantial. Furthermore, Nvidia's new investment partnership with Intel (INTC) in the CPU market poses a potential threat to AMD's traditional CPU strength, crucial for data center GPU control.

The analyst maintains a cautious stance, suggesting that while the OpenAI deal is a step forward, AMD faces persistent competitive pressures and valuation concerns. The significant one-day jump is perceived to have captured much of the immediate upside, tempering the long-term bullish outlook.

Key Decisions for Investors

• Investors should carefully evaluate AMD's current valuation of 52x forward earnings, which appears stretched relative to its growth trajectory and competitors like Nvidia and Broadcom.
• Monitor the specifics and progression of the OpenAI deal, as its ultimate value and impact are contingent on future computing capacity build-out and are less certain than direct sales.
• Assess the evolving competitive dynamics, particularly Nvidia's partnership with Intel in the CPU market, which could challenge AMD's position in the broader data center ecosystem.
• Consider that the significant post-announcement stock surge may have already priced in much of the immediate positive news, potentially limiting further short-term upside.