AMD Soars on OpenAI Deal. Is It Too Late to Buy the Stock?

Core Insights - AMD's partnership with OpenAI is expected to significantly enhance its position in the AI chip market, with OpenAI deploying 6 gigawatts of AMD's Instinct GPUs starting with a 1 gigawatt rollout of the MI450 chip in late 2026 [1][2] - The deal includes warrants for up to 160 million shares for OpenAI, which could lead to substantial revenue growth for AMD, projecting tens of billions in annual AI data center revenue by 2027 [2][7] Group 1: Partnership Details - OpenAI will utilize AMD's GPUs, marking a shift from its previous deal with Nvidia, where Nvidia invested directly into OpenAI [3] - This partnership allows OpenAI to take a stake in AMD, incentivizing OpenAI to support AMD's chip success [3][4] Group 2: Market Position and Competition - AMD has historically been a distant second in the data center GPU market, primarily due to Nvidia's established software ecosystem [4] - The partnership with OpenAI could attract other hyperscalers seeking alternatives to Nvidia's high-priced chips, especially as the market shifts towards inference tasks [4] Group 3: Financial Implications - Morgan Stanley analysts estimate that each gigawatt of AI compute could add approximately $3 in annual earnings power for AMD, potentially increasing its 2027 adjusted earnings-per-share from $6.74 to around $10 [7] - AMD's forward price-to-earnings ratio is about 36 times 2026 earnings estimates, but its PEG ratio of around 0.4 suggests it may be undervalued [8]