Core Insights - AMD has secured a significant deal with OpenAI to supply tens of thousands of GPU chips for 6 gigawatts of computing capacity over the next five years, marking one of the largest chip orders in the AI sector and indicating OpenAI's strategy to diversify its hardware supply chain beyond Nvidia [1] - Following the announcement of the deal, AMD's stock has surged nearly 40%, currently trading at approximately $235 per share [1] - The partnership is expected to drive substantial revenue growth for AMD, with projections indicating sales could reach around $96 billion by FY'28, supported by the demand for accelerated computing and new GPU products [6][7] Revenue Growth Potential - AMD's revenues have increased from $6.7 billion in 2019 to an estimated $26 billion in 2024, reflecting an annual growth rate of over 31%, with a consensus projection of nearly 28% growth for 2025 [6] - The OpenAI deal is anticipated to significantly enhance AMD's sales trajectory, with expectations of a 33% growth from an estimated $33 billion in FY'25 to approximately $43 billion by FY'26, and a potential 50% growth in 2027 and 2028 [7] Market Position and Valuation - AMD's adjusted net margins have improved from about 11% in FY'19 to over 21% in FY'24, with potential to reach around 25% as economies of scale improve [9] - If AMD's earnings grow 4.4 times, the price-to-earnings multiple could stabilize around 35x, leading to a market capitalization of approximately $840 billion [10] Strategic Implications - OpenAI's endorsement of AMD's chips not only represents a sales win but also enhances AMD's credibility, potentially attracting other hyperscalers and enterprise customers [8] - The shift in AI workload from training to inference favors AMD's architectures, which are designed for efficiency and cost-effectiveness [8] Risks and Considerations - As part of the OpenAI agreement, AMD issued warrants allowing OpenAI to purchase up to 160 million shares, which could dilute existing shareholders if exercised [11] - Despite potential dilution, the overall valuation expansion from the partnership could still result in net value creation for shareholders, with a plausible stock price of around $450 in the coming years [12][13]