Buy the Surge in AMD Stock After Striking Partnership with OpenAI?

Core Viewpoint - AMD has entered a multibillion-dollar partnership with OpenAI, enhancing its credibility and market share in the AI sector, while also securing long-term compute capacity for OpenAI [1][5]. Partnership Details - OpenAI will utilize up to 6 gigawatts of AMD's Instinct GPUs starting in the second half of 2026 for its AI infrastructure, including future ChatGPT versions and model training [3]. - AMD issued OpenAI a warrant for up to $160 million shares, potentially granting OpenAI a 10% stake in AMD if milestones are achieved [4]. Financial Projections - AMD anticipates the deal will generate tens of billions in revenue over the next five years, significantly impacting its position in the AI data center GPU market [5]. - Total sales for AMD are projected to increase by 27% in fiscal 2025 to $32.81 billion, with further growth of 19% expected in FY26 to $39.1 billion [6]. - Annual earnings are expected to rise by 19% in FY25 and soar by 50% in FY26 to $5.90 per share [6]. Stock Performance and Valuation - AMD stock has surged over 30% since the partnership announcement and is up more than 70% year-to-date, outperforming broader indexes [2]. - Currently, AMD trades at 51.6X forward earnings, a premium compared to Nvidia and Broadcom, but has a more reasonable price-to-forward-sales multiple of 10.1X [8]. Analyst Reactions - Following the partnership announcement, several Wall Street analysts have raised their price targets for AMD, with new highs reaching $300 from firms like Jeffries and Barclays [11]. - AMD's current average price target is $188.53, indicating potential upside [12].