Back in June, I told you that AMD was positioning itself to challenge Nvidia’s dominance in the AI hardware race.
At the time, Nvidia’s valuation was soaring, and Wall Street saw AMD as a distant second.
But as I said back then:
AMD just made its most convincing pitch yet, with a strong product and a strategy that gives companies like Tesla more control. I believe it’s only a matter of time before we could see Elon announce a major AI deployment built on AMD hardware. And the 800-pound gorilla might be in for a serious fight.
In August, I pointed to Amazon’s $84 million investment in AMD as another clue that something big was brewing in the AI chip wars.
Then, last month, AMD confirmed it had secured a major deal with a tech giant.
But it wasn’t with Tesla or Amazon.
It was with OpenAI.
According to Bloomberg, AMD’s 6-gigawatt chip supply agreement with OpenAI to power the company’s next generation of AI data centers could generate “tens of billions of dollars in new revenue.”
It also gives OpenAI the option to purchase up to 160 million AMD shares — roughly 10% of the company — if certain performance milestones are hit.
When this news broke, I said it could mark a turning point for AMD.
And it looks like the market agrees with me. Because AMD shares surged 58% in October.
AMD Ascendant
AMD was the top performer in the S&P 500 Index last month by a wide margin.
It wasn’t just a good month. As this chart shows, it was the company’s best monthly performance since January 2001.
And this success was driven by the same AI storyline we’ve been tracking for months.
Investors are betting that AMD’s new generation of AI chips will finally deliver the kind of growth that, until now, only Nvidia could claim.
But last month’s stock performance also increases the pressure on AMD.
The company’s stock price has more than doubled since June, and investors want proof that it can turn its design wins into real revenue. They’ll also be watching to see if AMD can scale the production of its next-generation chips fast enough to meet the massive demand from OpenAI and other partners.
So far, the signs are promising.
On Tuesday, AMD forecast its fourth-quarter revenue above Wall Street estimates, fueled by increasing demand for its MI300 chips.
But this stronger revenue outlook reflects an even bigger trend.
The world’s largest tech companies are pouring billions into the next generation of AI data centers. And it could be a massive opportunity for chipmakers like AMD.
Last quarter alone, Alphabet, Meta, Amazon and Microsoft spent more than $110 billion on capital expenditures.
Source: Wall Street Journal
According to Bloomberg, these same companies are expected to boost their combined spending by 34% to roughly $440 billion over the next 12 months.
AMD gets almost 13% of its revenue from just these four tech giants.
That’s why I remain optimistic about AMD’s future. If the company can execute on its chip strategy — and the signs so far are encouraging — this could be the beginning of a new chapter in the AI hardware race.
Not just for AMD, but for the entire AI supply chain.
Here’s My Take
Nvidia might still lead the pack, but AMD is finally running in the same lane.
It has a proven architecture and world-class partners. And the addressable market for AI compute continues to expand at double-digit rates.
That’s why I believe that October’s rally wasn’t a fluke.
Instead, it’s confirmation that AMD has graduated to become an “AI contender.”
And if the company’s upcoming earnings show even modest progress on data-center revenue, it could remain one of the few credible challengers to Nvidia’s dominance.
Members of Strategic Fortunes who held on to the company’s stock since I first recommended it back in 2020 have had the chance to at least 4X their initial investment.
If you’re not a member of my flagship service, you’re missing out on some of the biggest profit opportunities I’ve seen in my decades of investing.
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Regards,
Ian KingChief Strategist, Banyan Hill Publishing
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