AMD Update
Is the stock still undervalued?
In our AMD deep dive, published 3 months back, the stock was a buy based on a simple thesis — the performance of their new AI data center chips (Instinct MI350 series). The chip claimed to have 60% more memory than Nvidia chips, and can create 40% more generated tokens for every dollar spent.
If these numbers held in the real world, it would take away a considerable chunk of revenue from Nvidia. Adding to the fact that Nvidia was worth 20 times the valuation of AMD, our analysis suggested that AMD was the better bet.
And it turned out to be right. Even before Monday’s massive announcement, AMD had outperformed NVDA and had 3x the returns of the S&P 500.
Then this happened:
Given its massive implications, let’s dig into the deal details and whether our valuation and buy rating still hold since the stock is up 63% in the last 3 months!
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OpenAI x AMD Deal
The deal was announced on 6th October. It’s a multi-year, multi-generation strategic partnership for OpenAI to deploy up to 6 gigawatts of AMD Instinct GPUs, starting with the MI450 series. The first 1 GW rollout is expected to be in the second half of 2026 (to put 1GW in context, it’s roughly the power consumed by 800,000 U.S. homes!).
There is an equity kicker in the deal, where AMD has granted OpenAI warrants for up to 160 million shares (10% of the company), which vest only if the delivery/stock price milestones are met. This means that the incentives are locked together — OpenAI’s upside grows if the company commits to the spend, and AMD’s upside only grows if the rollout (of the future chips) succeeds.
The stock pumped so much (up 24% in one day) as it proves that companies are diversifying beyond Nvidia and also signals confidence in the new MX series chips from AMD. Because of this agreement, AMD is expected to receive $100B in new revenue over the next four years (AMD’s 2024 revenue was only $26B).
What now?
Given that AMD is now up 63% and 9x’d the performance of the S&P 500 since our buy recommendation, the all-important question now is whether we continue to buy/hold/sell the stock.
To decide, let’s dig into our valuation model:
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