Why AMD Stock Is Soaring This Week
Key Points
AMD's stock surged on Tuesday as ChatGPT developer OpenAI announced a five-year chip supply contract with the company.
OpenAI's well-known Nvidia pipeline will still be larger than the AMD agreement.
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Shares of Advanced Micro Devices (NASDAQ: AMD) are absolutely skyrocketing this week. As of noon ET on Oct. 9, the chip designer's stock has gained 42% from last Friday's closing bell, according to data from S&P Global Market Intelligence. The fuel for this fire is no secret: AMD struck a chip-supply deal with ChatGPT maker OpenAI.
OpenAI's big AMD order
The companies announced their partnership in the early hours of Tuesday, Oct. 6. OpenAI will install enough AMD artificial intelligence (AI) accelerator cards to consume 6 gigawatts of electric power in a five-year deal, with several smaller phases. The first gigawatt on new systems will use the AMD Instinct MI450 graphics processing units (GPUs) in the second half of 2026.
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The announcement also reminded investors that OpenAI has been using AMD Instinct MI300X and MI350X accelerators in the past. ChatGPT is not exclusively powered by Nvidia (NASDAQ: NVDA) hardware.
As part of the deal, OpenAI will have the option of purchasing nearly 10% of AMD's stock in another multistage structure, based on stock warrants tied to AMD's stock price and OpenAI's order volumes. The final tranche would be unlocked by AMD's stock price reaching $600 per share.
AMD's stock closed 26% higher that day -- and continued to climb as investors and analysts digested the news.
Image source: AMD.
It isn't the end of OpenAI's Nvidia relationship
AMD sees "double-digit billions" of annual sales going into this agreement, with the side benefit of encouraging other AI data centers to try AMD's solutions. The overall top-line impact could be "well over $100 billion" of previously unexpected AI revenue over the next five years.
To put that target in perspective, AMD reported $29.6 billion of total revenue over the last four quarters. That's a drop in the bucket next to Nvidia's $165.2 billion over the same period.
Of course, Nvidia remains OpenAI's chief hardware provider. The AMD deal followed two weeks after an even larger Nvidia-OpenAI contract, committing the ChatGPT developer to 10 gigawatts of Nvidia orders over several years.
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Anders Bylund has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
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