After Massive OpenAI Deal, Is AMD Stock Still a Buy?

Advanced Micro Devices (NASDAQ:AMD) shocked investors yesterday with a landmark multi-year agreement to supply OpenAI with 6 gigawatts of its Instinct graphics processing units (GPUs), starting with 1 gigawatt in the second half of 2026. The deal, which could generate tens of billions in annual revenue for AMD, includes a warrant allowing OpenAI to acquire up to 160 million shares — roughly 10% of the company — for a nominal fee, tied to deployment milestones and stock price targets up to $600 per share. 

This positions AMD as a core compute partner for OpenAI’s AI infrastructure, building on prior collaborations like the MI300X and MI350X series. The news triggered a 24% surge in AMD stock, closing at $203.71 per share and adding over $63 billion to its market cap. For AMD, this validates its AI roadmap and opens doors to $100 billion in revenue over four years from OpenAI and other customers. It also signals growing demand for alternative AI chip solutions amid supply constraints. 

Yet with AMD’s stock now nearing its all-time high of $211 per share from March 2024, is the stock still a buy at these elevated levels?

AMD Levels Up By Matching Nvidia’s AI Playbook

The OpenAI pact catapults AMD into direct competition with Nvidia (NASDAQ:NVDA), which inked a similar 10-gigawatt deal in September worth up to $100 billion in investments to fund OpenAI’s data centers. 

Both agreements highlight OpenAI’s strategy to diversify suppliers and build massive AI capacity — 23 gigawatts total across partners — while locking in chip volumes. For AMD, this means co-designing rack-scale solutions with OpenAI, boosting its software ecosystem like ROCm to rival Nvidia’s CUDA. Analysts see it as a “transformative” shift, proving AMD’s chips can handle frontier AI workloads at scale.

Wall Street reacted swiftly. Jefferies upgraded AMD to Buy from Hold, hiking its price target to $300 from $170 per share, calling it a “major validation” of AMD’s AI narrative. Melius Research lifted its target to $300 from $200, while Stifel raised to $240 from $190 per share, emphasizing AMD’s elevated role in AI infrastructure. 

Truist Securities upped its own target to $273 from $213 per share, noting OpenAI views AMD as a primary partner, not just a Nvidia alternative. Consensus targets now average around $220 per share, implying 8% upside from current levels, with “Strong Buy” ratings dominating. 

These upgrades reflect expectations of 40% revenue growth in 2026, driven by data center sales jumping to over $10 billion annually.

Hidden Trap of the Circular Economics of AI Deals

Despite the hype, there are significant risks associated with these deals, which form a tangled web: Nvidia’s $100 billion infusion into OpenAI’s funds purchases of both Nvidia and AMD chips, effectively subsidizing a rival. If OpenAI’s $500 billion valuation falters — it’s burning $2.5 billion in cash on $4.3 billion first-half revenue — delays in deployments could slash AMD’s projected inflows. 

Antitrust scrutiny will intensify, too, as regulators eye these ties for potential collusion in the $200 billion AI chip market. Geopolitical tensions over Taiwan supply chains add volatility. 

AMD’s valuation is also getting stretched thin at 52 times forward earnings, versus Nvidia’s 32 and well above its five-year historical 38 average. A broader AI slowdown, like waning hyperscaler spending, could trigger a 20% to 30% pullback. Plus, Nvidia’s 80% GPU market share means AMD must execute flawlessly on MI450 production ramps. 

OpenAI’s chip diversification aids in pricing leverage, but it caps AMD’s share if cheaper options emerge.

Key Takeaway

At $203 (with shares jumping another 5% higher pre-market), Advanced Micro Devices trades at a premium, but the OpenAI deal de-risks its AI pivot and sets up multi-year tailwinds. With analyst conviction at peak levels and revenue visibility unmatched since the PC boom, the stock merits a buy.

Adding to positions now and targeting $250 per share by mid-2026 recognizes how much the OpenAI deal demonstrates AMD’s AI moment has arrived.