This article explores the recent dramatic increase in Advanced Micro Devices' (AMD) stock value, fueled by a significant agreement with OpenAI for the supply of artificial intelligence (AI) chips. It delves into the specifics of this partnership, its financial implications for AMD, and how it positions the company within the broader AI hardware landscape, particularly in relation to its competitor, Nvidia.
AMD's Strategic AI Alliance Propels Stock to New Heights
Dramatic Stock Rally Driven by Major AI Partnership
Shares of Advanced Micro Devices have seen a remarkable increase this week, with its stock value climbing by 42% since the close of trading last Friday. This substantial growth is directly attributed to a newly unveiled agreement with OpenAI, the creator of ChatGPT, for the provision of AI accelerator chips.
OpenAI's Extensive Commitment to AMD Hardware
The collaboration, publicly announced in the early hours of Tuesday, October 6, outlines that OpenAI will integrate AMD's AI accelerator cards, requiring an impressive 6 gigawatts of electrical power over a five-year period. The initial phase of this deployment, scheduled for the latter half of 2026, will utilize AMD's Instinct MI450 graphics processing units (GPUs) to power a new 1-gigawatt system. This revelation also served as a reminder that OpenAI has previously incorporated AMD Instinct MI300X and MI350X accelerators, indicating that Nvidia is not its sole hardware supplier.
Incentives and Future Projections from the OpenAI Deal
As part of this groundbreaking agreement, OpenAI holds an option to acquire nearly 10% of AMD's stock. This can be exercised through a phased structure linked to AMD's stock performance and the volume of OpenAI's orders, with the final stage contingent on AMD's stock reaching a price of $600 per share. Following the news, AMD's stock closed 26% higher on the day of the announcement, continuing its upward trajectory as investors and market analysts processed the implications of the deal.
Anticipated Financial Impact and Market Positioning for AMD
AMD anticipates that this agreement will generate "double-digit billions" in annual sales. Furthermore, the company expects this partnership to encourage other AI data centers to adopt AMD's solutions, potentially adding "well over $100 billion" in unexpected AI revenue over the next five years. To contextualize, AMD's total revenue for the preceding four quarters stood at $29.6 billion, significantly less than Nvidia's $165.2 billion during the same timeframe.
Nvidia's Enduring Role in OpenAI's Hardware Infrastructure
Despite the substantial AMD deal, Nvidia maintains its position as OpenAI's primary hardware provider. The agreement with AMD was finalized just two weeks after OpenAI committed to an even larger contract with Nvidia, involving 10 gigawatts of orders for Nvidia's accelerators over several years.
