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AMD Skyrockets After OpenAI Deal: A New Power Shift in AI Chips?

Advanced Micro Devices (AMD) shares exploded nearly 25% in premarket trading, extending gains throughout the day after reports confirmed that OpenAI struck a multi-billion-dollar chip supply deal with the company. The shock announcement included an extraordinary detail: OpenAI was granted warrants to purchase up to 10% of AMD’s shares — at just $0.01 each.

The deal sent shockwaves through the semiconductor world, rattling the dominance of Nvidia (NVDA), whose shares slipped modestly as traders reassessed competitive dynamics in the AI hardware race. AMD’s jump marks its strongest single-day rally in years, sparking a fierce debate: 👉 Is this a fundamental turning point for AMD in the AI arms race, or simply a speculative overreaction?

The OpenAI Alliance: What It Means for AMD

For months, the AI landscape has been heavily skewed in Nvidia’s favor. Nvidia’s H100 and upcoming H200 GPUs dominate large language model training, and its CUDA ecosystem remains unmatched. But this new OpenAI–AMD partnership could reshape the balance.

While the exact chip models or architectures involved were not disclosed, sources suggest that AMD’s MI300X AI accelerators will play a key role in powering OpenAI’s next-generation data centers. The deal implies that OpenAI wants to diversify beyond Nvidia, both for supply-chain security and pricing flexibility — a major strategic shift after years of near-total dependence on Nvidia hardware.

The warrant component — allowing OpenAI to buy up to 10% of AMD’s shares — signals a deep partnership, not a mere procurement contract. It effectively aligns OpenAI’s financial incentives with AMD’s long-term success, echoing how Microsoft’s early equity tie-up with OpenAI fueled exponential growth on both sides.

The Market’s Reaction: Euphoric, But Rational?

AMD’s stock reaction, while dramatic, has some justification. The potential revenue impact could be massive. If OpenAI scales up production of its “ChatGPT superclusters” using AMD silicon, analysts estimate incremental revenue contributions exceeding $3–5 billion annually — a figure that could significantly boost AMD’s data center segment, which generated roughly $5.5 billion in revenue in 2024.

However, investors should note that much of this optimism hinges on execution and supply readiness. AMD’s MI300 chips only began mass deployment recently, and scaling up production at TSMC’s advanced 5nm process is no trivial feat. Still, if the deal marks the start of sustained AI server momentum, AMD could rapidly expand its AI market share from less than 10% today to as much as 25–30% within two years, according to bullish estimates.

AMD vs. Nvidia: The Battle for AI Dominance

For over two years, Nvidia has been the undisputed king of AI hardware. The company’s AI-related revenue soared past $30 billion in the last 12 months, dwarfing AMD’s data center segment. But momentum may be shifting.

While Nvidia remains a powerhouse with superior margins and ecosystem dominance, AMD is catching up fast on hardware performance and cost-per-watt efficiency. Its MI300X is already being compared favorably to Nvidia’s H100 in inference workloads, and AMD’s expanding software stack (ROCm) continues to gain developer adoption.

This OpenAI partnership effectively legitimizes AMD as a credible alternative — and that narrative alone could drive multiple expansion.

Valuation Perspective: Still Room to Run?

Before the rally, AMD traded near $100–110 per share, with a market cap around $180 billion. After this explosive jump, it’s now hovering around $135–140, pushing valuation multiples higher.

Even after the move, AMD’s long-term valuation case isn’t extreme when compared to Nvidia during its growth inflection phase in 2023–2024.

• At $140, AMD trades at about 45x forward earnings — rich but justified if earnings per share rise sharply from AI demand.

• If OpenAI’s orders scale as expected, AMD’s EPS could exceed $4.50 by FY2026, implying a forward P/E closer to 30x, which is quite reasonable for high-growth AI exposure.

By contrast, Nvidia currently trades near 35x forward earnings, suggesting that both companies are valued at comparable growth-adjusted levels — though Nvidia’s higher profitability still gives it a defensive premium.

Can AMD Follow Nvidia’s Path to New Highs?

To answer that, investors must recall Nvidia’s own trajectory. When Nvidia’s AI breakout started in early 2023, shares rallied from $160 to over $500 within 18 months — a 200% surge driven by insatiable demand for training chips and hyperscaler orders.

If AMD’s AI segment truly mirrors even a fraction of that expansion, the math becomes compelling. Suppose AI chips lift AMD’s data center revenue by $10 billion annually by FY2026. Applying Nvidia-like margins and a 30x multiple, that could justify a market cap north of $250–280 billion, implying an upside of 40–60% from current levels.

However, execution risk remains key. AMD must prove it can deliver consistent supply, maintain pricing power, and scale software support fast enough to meet OpenAI’s needs. If it fails, this euphoria could fade as quickly as it appeared.

Nvidia’s Calm Response: The Leader Isn’t Panicking

Interestingly, Nvidia’s slight dip following AMD’s rally reflects confidence, not fear. Nvidia continues to dominate AI clusters across Microsoft, Meta, and Google. The company is already preparing its Blackwell platform, expected to deliver another major leap in efficiency.

Moreover, Nvidia’s moat lies not just in silicon, but in CUDA’s developer ecosystem, machine-learning libraries, and enterprise integration tools — an advantage AMD still lacks. So while AMD may gain share in hardware sales, Nvidia could maintain its lead in overall AI infrastructure revenue.

Analyst Targets and Market Outlook

• AMD: Analysts are now rushing to revise their targets. H.C. Wainwright and Morgan Stanley reportedly lifted their price targets to $160–$170, reflecting optimism about multi-year AI monetization.

• Nvidia: Consensus target remains around $1550 (post-split-adjusted), implying moderate upside from current levels.

My personal price targets for 12–18 months:

• AMD: $160 (base case), $190 (bull case if OpenAI orders ramp fast)

• Nvidia: $1500 (base case), $1700 (bull case if Blackwell adoption accelerates)

Verdict: Buy the Dip or Take Profits?

For short-term traders, today’s rally may seem like a perfect moment to lock in gains. After all, a 25–30% one-day surge is rarely sustainable without a pullback. But for long-term investors, this partnership signals something bigger — the start of AMD’s true participation in the AI hardware boom.

AMD now stands as the first credible challenger to Nvidia’s AI monopoly, with financial and strategic backing from OpenAI — arguably the most influential AI firm in the world.

Verdict:

• Short-term: Expect volatility; partial profit-taking above $140 is prudent.

• Long-term (12–24 months): Remains a strong buy on any dips below $130.

• Target Range: $160–$190 per share by 2026.

Key Takeaways

1. OpenAI’s partnership marks a structural shift — AMD is no longer a secondary player in AI.

2. The warrant deal aligns incentives, giving OpenAI a vested interest in AMD’s success.

3. Valuation remains attractive versus Nvidia’s historical growth phases.

4. Execution risk is real, especially in software ecosystem and chip supply.

5. Long-term investors could benefit from compounding AI demand, especially as global data center buildouts accelerate.

Bottom Line: OpenAI didn’t just buy chips — it bought into AMD’s future. And that could mark the start of a new two-horse race in the AI revolution.