Melius upgrades this AI play, says shares can surge more than 35%

Melius Research upgraded Advanced Micro Devices (AMD) to Buy, raising its price target by $65 to $175, implying a 36.5% upside. Analyst Ben Reitzes cited increased conviction in AMD's GPU momentum, driven by larger-than-expected growth in inferencing and significant investment interest from hyperscalers and sovereigns for 2026-2028 GPU numbers. Despite AMD's recent 24% Q2 rally, Reitzes believes the stock is in the middle of a historic run, though he acknowledges its high volatility.

Analysis

Melius Research has upgraded Advanced Micro Devices (AMD) to a Buy rating, raising its price target by $65 to $175, which implies a potential 36.5% upside. The upgrade is underpinned by the analyst's increased conviction that investors are beginning to price in significantly larger graphics processing unit (GPU) sales for the 2026-2028 period. This forward-looking optimism is fueled by two primary catalysts: growth in the AI inferencing market, which has proven to be a larger business than initially expected, and substantial investment interest from both hyperscalers and sovereign entities. Despite a strong rally of over 24% in the second quarter, the research note suggests this could be the midpoint of a "historic run" for the stock. However, the analyst explicitly cautions that the stock is considered highly volatile, citing a past price swing from over $200 to below $100 as evidence of its price instability. The upgrade prompted an immediate positive market reaction, with AMD shares rising approximately 1% in premarket trading.

Key Decisions for Investors

• Investors with a higher risk tolerance might view this upgrade as a catalyst to initiate or add to positions, targeting the long-term GPU momentum driven by AI inferencing and hyperscaler demand.
• Given the stock's explicitly noted high volatility, it is critical to manage risk through disciplined position sizing or the use of stop-loss orders to mitigate potential sharp price swings.
• Monitor future company reports and industry data for confirmation of accelerated GPU orders from hyperscalers and sovereign clients, as this is the core pillar of the a nalyst's bull thesis.
• Despite the recent 24% Q2 rally, the analysis suggests the market may not have fully priced in the long-term potential, presenting a possible entry point for investors who believe the growth cycle is still in its middle stages.