Key Morningstar Metrics for Advanced Micro Devices
- Fair Value Estimate: $210
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
AMD Stock Update
AMD and OpenAI reached an agreement where AMD will supply artificial intelligence gear for up to 6 gigawatts of OpenAI’s AI infrastructure. AMD expects the deal to earn tens of billions of dollars of annual incremental revenue with the rollout starting in second-half 2026.
Why it matters: We’re highly encouraged with this deal for AMD as it validates its AI technology and significantly boosts its future AI revenue and profits. AMD hinted at the potential for “well over $100 billion” in future revenue.
- We’ve long believed that AMD will carve out a piece of the AI pie. This deal suggests that AMD’s slice of the market might be a bit higher than expected. However, we doubt it displaces Nvidia as the dominant AI vendor.
The bottom line: We raise our fair value estimate for narrow-moat AMD to $210 from $155 thanks to this upcoming AI windfall. We retain our Very High Uncertainty Rating as surprising, massive AI deals seem to be arising weekly.
- We have doubled our estimates for AMD’s AI GPU revenue in 2027 and beyond. We now project $42.2 billion for AMD by 2029 versus our prior estimate of $20.7 billion.
- AMD will issue warrants for up to 160 million shares (about 10% of total shares) to OpenAI. We’re not alarmed by the warrants and suspect that investors would gladly trade this accretive revenue windfall for some stock dilution if AMD were to hit all its targets.
Coming up: OpenAI continues to have massive aspirations for AI adoption, driving significant deals with both Nvidia and AMD.
- No timeline was set for OpenAI’s rollout. Perhaps the greatest risk to AMD’s future revenue from this deal may come from the energy and power requirements that OpenAI and its partners will need for such massive infrastructure buildouts.
- If OpenAI and its partners were to roll out this infrastructure slower than envisioned, it might be bad for their aspirations but perhaps good for investors fearful of an AI bubble. The 90’s .com bubble had no such outside energy constraints.
