Unusual Activity in Advanced Micro Devices Options Highlight Investors' Enthusiasm - But Is AMD Stock at a Peak?

Core Viewpoint - Advanced Micro Devices (AMD) has announced a significant deal with OpenAI to produce AI chips and data centers, leading to a surge in its stock price and call options trading, but concerns exist regarding the sustainability of this growth and whether the stock is overvalued [1][3]. Financial Performance - AMD's stock price increased by 36.1%, reaching $224.13, up from $164.67, following the announcement of the deal with OpenAI [1]. - Analysts project AMD's revenue to rise to $41.3 billion next year, up from $33.04 billion this year [4]. - AMD's free cash flow (FCF) margin over the past year was 13.66%, significantly lower than Nvidia's 43.59% [4]. Valuation Analysis - Using a 14% FCF margin, AMD could generate $5.78 billion in free cash flow, suggesting a market valuation of $175 billion based on a 3.3% FCF yield [4]. - Currently, AMD's market capitalization stands at $362.26 billion, which is more than double the calculated valuation based on projected cash flows [5]. - Assuming revenue reaches $60 billion in three years with a 20% FCF margin, the valuation would still align with the current market cap, raising questions about potential overvaluation [5][6]. Options Activity - There is a notable increase in call options trading, with nearly 8,000 contracts at a $450 strike price for expiration in June 2026, indicating bullish sentiment among investors [8].