AMD's Stock Surged 24% on Its OpenAI Partnership and Is Near an All-Time High. Is It Still a Buy?

AMD (NASDAQ: AMD) hasn't been the success story many investors hoped it could be. AMD is seen as an alternative pick to Nvidia, the current king of artificial intelligence (AI) computing. The thesis was that AMD could serve as a viable alternative to Nvidia's products, and maybe gain some market share if Nvidia's prices got too high.

That thesis hasn't panned out, and the stock is just now approaching its all-time high established in early 2024. For reference, Nvidia's stock is up around 280% since the start of 2024, while AMD is up nearly 40% (at the time of this writing).

However, those fortunes may be turning around. AMD recently announced a deal with OpenAI, taking up to a 10% stake in AMD in exchange for its chips. This caused the stock to surge 24% the following day, and is clearly a bullish sign for AMD that OpenAI is using some of AMD's chips to power its AI ambitions.

So, is this the beginning of a turnaround for AMD, or has this one-day jump captured all of the gains? Let's take a look.

AMD's AI aspirations haven't panned out

AMD produces graphics processing units (GPUs) that "compete" with Nvidia's. While you could make an argument that AMD's GPUs for gaming are better in some aspects than Nvidia's, that isn't the case for data center GPUs that power artificial intelligence. There's a far larger market for data center GPUs than there is for gaming ones, which has made Nvidia the superior stock to own.

While AMD's data center GPUs are still deployed in small quantities, they haven't emerged as a viable alternative to Nvidia's. Instead, custom AI accelerator chips from Broadcom that are developed in conjunction with the end user have established themselves as better alternatives to Nvidia's GPUs. Broadcom recently announced a $10 billion sale in a custom AI accelerator chip, which was largely linked to OpenAI.

While the specifics of the AMD and OpenAI deal are rather cloudy, the stock warrants could be worth up to a 10% stake in AMD. At today's $330 billion market cap, that establishes a $33 billion value on the deal, which is a decent amount more than Broacdom's announcement. However, AMD's deal is vested in various stages, and it isn't guaranteed to work out, as it's based on how much computing capacity is built out. Broadcom's announcement was an actual order for $10 billion in chips, and I'd put more weight on that deal than the AMD one.

Still, I think that this could be a part of a turnaround for AMD, especially if OpenAI sees success. But there's another factor investors must consider, as Nvidia is also coming for AMD's business.

Data center GPUs need to be controlled by CPUs to direct traffic. That's not an area where Nvidia has a product, and could give AMD a leg up.

Unfortunately for AMD, Nvidia's new investment partnership with Intel (NASDAQ: INTC) could disrupt this status quo. Intel and AMD have long competed in the CPU realm, with Intel historically owning this space and AMD once again playing second fiddle. AMD has made up a ton of ground and is now fairly close to Intel, but with Nvidia's backing, the lead could open up again.

This could be an issue for AMD's renewed AI aspirations, as many companies have already established an Nvidia ecosystem, and being able to use CPUs made specifically for Nvidia GPUs could give them a leg up on AMD. Time will tell if this pans out, but it's something investors must keep an eye on.

The OpenAI deal is big news for AMD, but it's far from out of the woods yet. After the massive one-day rise, is AMD stock still worth buying here?

AMD doesn't present investors with much value

Unfortunately for AMD stock, it was already about as expensive as Nvidia before the surge despite having much worse growth rates.

AMD PE Ratio (Forward) data by YCharts

At 52 times forward earnings, AMD is more expensive than Broadcom and Nvidia only because of one deal.

AMD hasn't established itself as a true Nvidia alternative yet, although this deal is a start. I still think it doesn't make sense to own the second-place company if it's more expensive than the leader, so I think this isn't a buying opportunity for AMD's stock. If AMD's stock traded at a discount, there could be a case to make, but because it doesn't, I think investors are better off sticking to the leaders rather than trying to earn style points by investing in AMD.

Keithen Drury has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.