Advanced Micro Devices on Monday announced a strategic partnership with big-spending artificial intelligence company OpenAI. AMD stock surged on the news.
Under the deal, OpenAI will deploy 6 gigawatts of AMD graphics processing units, or GPUs, over a multi-year, multi-generation period. It will start with 1 gigawatt of AMD Instinct MI450 Series GPUs in the second half of 2026.
Also, AMD gave OpenAI a warrant for up to 160 million shares of AMD stock that will vest as milestones are achieved. Those targets require AMD's stock price to continue to increase in value and for OpenAI to achieve technical and commercial milestones needed to enable AMD deployments at scale. If fully transacted, OpenAI could end up buying a stake of roughly 10% in AMD.
"We are thrilled to partner with OpenAI to deliver AI compute at massive scale," AMD Chief Executive Lisa Su said in a news release. "This partnership brings the best of AMD and OpenAI together to create a true win-win enabling the world's most ambitious AI buildout and advancing the entire AI ecosystem."
The deal should generate "tens of billions of dollars in AI revenue annually" for AMD over time, the company said.
OpenAI has committed to spending hundreds of billions of dollars to build out its AI infrastructure. In recent weeks, it has signed deals with tech suppliers Nvidia, Oracle, Samsung and SK Hynix.
Two weeks ago, OpenAI signed an even larger deal with AMD rival Nvidia. Under that strategic partnership, OpenAI will deploy at least 10 gigawatts of AI data centers running Nvidia processors. Also, Nvidia plans to invest up to $100 billion in the ChatGPT creator.
Meanwhile, OpenAI reportedly has partnered with Broadcom to develop a custom AI chip, according to news reports.
AMD Stock Breaks Out
On the stock market today, AMD jumped 23.7% to close at 203.71. Earlier in the session, it rocketed 37.7% to 226.71.
With the advance, AMD stock broke out of a seven-week consolidation pattern at a buy point of 186.65, according to IBD MarketSurge charts.
OpenAI's latest deal comes amid growing questions about the AI startup's ability to finance its massive infrastructure ramp. It also is facing concerns about whether demand for AI services will justify that buildout. Plus, worries are increasing on Wall Street about a possible bubble for AI stocks.
With its huge spending bets, OpenAI "has the power to crash the global economy for a decade or take us all to the promised land," Bernstein analyst Stacy Rasgon said in a client note. "And right now we don't know which is in the cards."
Rasgon maintained his market perform, or neutral, rating on AMD stock but raised his price target to 200 from 140.
AI Arms Race Continues
The OpenAI deal could be worth over $100 billion in total revenue to AMD over five years, Barclays analyst Tom O'Malley said in a client note.
"We would again highlight this as a proof point that the ecosystem is desperate for more compute versus a statement about (taking market) share away from Nvidia," he said.
Nvidia stock dipped 1.1% to close at 185.54 on Monday.
O'Malley reiterated his overweight, or buy, rating on AMD stock and hiked his price target to 300 from 200.
The OpenAI deal should reassure investors about AMD's AI business, Wedbush Securities analyst Matt Bryson said in a client note. "We believe the sharp upward move in the stock is more than justified given this news," Bryson said.
Fellow Wedbush analyst Daniel Ives said the AMD-OpenAI partnership is more proof that "the AI arms race is heating up among Big Tech firms."
CFRA Research analyst Angelo Zino maintained his strong buy rating on AMD stock and upped his 12-month price target to 250 from 200.
"AMD is gaining significant momentum in ramping its full-scale rack solutions for 2026," he said in a client note.
Sanmina, TSMC Shares Climb
Contract electronics manufacturer Sanmina also jumped on the news. Its pending acquisition of AMD's ZT Systems, announced in May, makes it a preferred manufacturing partner for AMD's AI data center products.
Sanmina stock rocketed as much as 40% on news of the AMD-OpenAI partnership. Sanmina ended the regular session up 22.7% to 140.
AMD's chip foundry Taiwan Semiconductor Manufacturing, better known as TSMC, saw its shares pop on the news as well. TSMC stock climbed 3.5% to close at 302.40. Earlier in the session, it notched an all-time high of 307.30.
AMD stock along with Sanmina and TSMC are on the IBD Tech Leaders list.
Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
