AMD, as it’s better known, is by no means the best performing stock in the AI-focused sector, but it’s still done very well. So what’s happened?

A competitor of note

Hyperscale customers — companies such as Alphabet, Meta and Amazon who are building huge AI data centres — view AMD as a credible second source to Nvidia for data-centre accelerators.

Its market share varies by product, but on the important opportunity — GPUs for data centres — it only holds a single digit share. More broadly across chips, it appears to have low double digit market share. But remember, this is a huge market. And this has fed through to the financial data.

In Q3 2025, AMD’s data-centre revenue jumped 34% quarter-on-quarter to $4.3bn, while operating income surged 793% year-on-year to $1.1bn. The MI300 chip has been rapidly adopted since its launch in late 2023.

At the same time, Nvidia’s ongoing supply constraints meant cloud customers were actively looking for alternatives. Even modest penetration by AMD into the accelerator market carries enormous profit leverage because GPU margins are far higher than those of traditional CPUs.

Looking forward, the upcoming MI400 series, launching in 2026 with variants optimised for both training and inference, is widely anticipated.

Realistically, it’s not going to challenge Nvidia’s GPU dominance, but the AI infrastructure segment’s expected to grow at a 42% CAGR through 2029. Any market share gains are huge when translated to earnings.

Is it good value?

AMD’s valuation remains relatively attractive but it depends on how you interpret the metrics. It trades at 51 times forward earnings for FY2025, the fiscal year just ended. The figure for the forward 12 months is closer to 32 times.

Medium-term earnings growth’s actually at 45% per annum. With this in mind, we’d come to a price-to-earnings-to-growth (PEG) ratio significantly below one and far below the sector average of 1.7.

The best comparison however, is with Nvidia. It’s trading at 39.5 times FY2026 earnings (FY2026 ending in March). The figure for the forward 12 months is closer to 24.4 times.

Meanwhile, the medium-term earnings growth is at 37% per annum. This also gives us a deeply undervalued PEG ratio when using the 12-month price-to-earnings.

So on valuation, it’s actually pretty close to its peer. They’re both around 0.6-0.7 on the PEG ratio, which typically indicates good value.

The bottom line

Personally, my preference is still for Nvidia. The company has fingers in so many AI pies that its long-term value proposition exists far beyond the sale of hardware. It will undoubtedly play a leading role in the rollout of robotics, for example.

AMD remains an attractive challenger, but its opportunity set is narrower, and for most large-scale AI workloads Nvidia’s GPUs are still the default choice.

I believe both stocks are worth considering.

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Now, the stock does look a little expensive after its recent pop. However, Wall Street analysts seem to think it can go much higher.

A big deal

The OpenAI partnership’s certainly a big deal for AMD. Under the deal, the chip designer will provide its high-powered ‘Instinct’ GPUs to the artificial intelligence (AI) company as it expands in the years ahead, starting with an initial one gigawatt deployment (in the second half of 2026), and working up to six gigawatts over time.

For AMD, the deal’s likely to deliver “tens of billions” of dollars in revenue for the company and be “highly accretive” to earnings, according to CFO Jean Hu. And over the next four years, the ripple effect of the deal could generate more than $100bn in new revenue, according to management.

As for OpenAI, the deal will help it accelerate its infrastructure buildout. “This partnership is a major step in building the compute capacity needed to realise AI’s full potential,” said OpenAI CEO Sam Altman.

Note that as part of the agreement, the chip company has issued OpenAI a warrant for up to 160m AMD shares, structured to vest as specific milestones are achieved. In other words, OpenAI has the option to become a major shareholder in AMD in the future.

New share price forecasts

Now, I was expecting to see some share price target increases after this deal was announced. But I have to say I’m amazed at the magnitude of some of the increases.

Just look at these new forecasts:

Clearly, the deal’s a game-changer for the company, if Wall Street analysts are to be believed. Quite a few analysts see the chip stock now going to $300 (about 42% above its current share price).

Worth a look today?

Is the stock worth considering given this bullish sentiment? I think it probably is, assuming one has a long-term investment horizon.

As I said above, it looks expensive today. Currently, the forward-looking price-to-earnings (P/E) ratio’s about 52 (falling to about 35 using next year’s earnings forecast).

However, if the OpenAI deal brings in tens of billions in new revenue, earnings are likely to rise sharply in the years ahead. And this earnings growth could lower the valuation and propel the stock higher.

I’ll point out that AMD chips are used in other industries (eg home computing), so the company isn’t a pure play on AI. And weakness in these other industries could offset the potential growth from AI.

Overall though, I see quite a bit of long-term growth potential. So I think the stock’s worth a look right now.

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Details of the deal

AMD and OpenAI just announced a multi-year, multi-generation strategic partnership in which AMD will supply AI chips (GPUs) to OpenAI. In terms of size, OpenAI will deploy up to six gigawatts of AMD’s Instinct GPUs over several years. The initial deployment is set to start next year.

As part of the agreement, AMD has issued warrants to OpenAI for up to 160m shares, which is about 10% of AMD. These warrants vest based on deployment milestones and AMD’s share price performance.

Although projections for the financial benefit are not easy to gauge, AMD expects the deal to generate tens of billions in annual revenue. Over the course of the next four years, it expects it to come close to $100bn in new revenue.

Why it’s great for AMD

I feel there are many reasons why this is good for the company in the long run. To begin with, the revenue opportunity is huge and comes as a key way of validating the business going forward.

Until now, Nvidia has dominated AI infrastructure. This deal helps AMD diversify its customer base, gain credibility, and show that it can compete at scale in AI.

The use of stock warrants is interesting too. OpenAI gets the option to acquire up to 10% of AMD via these warrants, so it has skin in the game. That ensures it’s more likely to use AMD’s tech over time, which helps AMD with sustained demand. Further, the details of the warrants linked to stock performance mean AMD management will want the share price to increase as well. I only see this as a positive for other investors.

Finally, the size of the initial stock move yesterday is another sign of how well people are taking the partnership. OpenAI is the most valuable private company in the world, so getting closer to it should help AMD to ride higher as both companies grow.

Pause for thought

Despite the optimism, there are still risks. The jump in the stock means the price-to-earnings ratio for AMD is an eye-watering 117. This is very high and so could mean the stock is currently overvalued and at risk of a sharp fall if results disappoint.

In terms of the deal, delivering this amount of gigawatt infrastructure is hard. There are many factors involved that could delay or reduce expected revenue based on the rollout plans.

But even though it’s wise for investors to keep a level head with such deals, I still think it’s a stock with growth potential that they can consider.

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The two said they’ve signed a letter of intent, with Nvidia planning to invest up to $100bn in OpenAI. The aim is to provide at least 10 gigawatts of power to advance the next generation of AI models. Nvidia CEO Jensen Huang called it the “biggest AI infrastructure project in history.”

A 4% rise on the day might not sound like much for a stock that’s already up 1,350% over the past five years. But it’s enough to nudge the market cap close to a staggering $4.5trn.

AI stock boost

This deal will inevitably brighten the enthusiasm of long-term Nvidia bulls. But it could also add impetus for AI-led growth for a number of other stocks.

One of those is Micron Technology (NASDAQ: MU), due to post full-year results later Tuesday (23 September). Micron makes a range of semiconductor memory devices, including high-bandwidth memory. That’s in great demand for AI processing, and it’s helped send Micron earnings soaring over the course of the past year.

Valuation is my main concern with a stock like this, driven by a technology-led bull run. And in this case we’re looking at a scary trailing price-to-earnings (P/E) ratio of 137 for 2024.

Still, analysts expect that to fall dramatically for the 2025 year just ended, with most suggesting the high 20s. If forecasts are right, it could even fall under 15 in the next couple of years.

We must consider the intense competition in this sector, with a large number of global companies pumping out huge volumes of memory chips. What if someone else comes out with the next-generation technology to capture the AI imagination?

Even more chips

There’s a bigger AI valuation premium at Advanced Micro Devices (NASDAQ:AMD), with a lofty forward P/E up at 67. That’s a fair bit ahead of even Nvidia’s predicted multiple, which stands at 42. Hmm, AMD suddenly makes Nvidia look cheap.

AMD has recently signed a deal with IBM to work on developing quantum computing, and that gave the stock price a boost. I’m not holding my breath waiting for the quantum revolution, mind. It’s been promised for so long now, but really hasn’t lived up to the hype yet.

Yes, it might well herald the next computing revolution. I just wonder if investors might be paying a bit too much today for jam tomorrow.

Still, I can’t deny that AMD could hold significant potential for AI-led growth. And unlike so many of the start-ups, AMD joins Nvidia as a highly-profitable company with strong cash flow. And forecasts do show that P/E coming down fairly quickly.

What to do?

US consulting firm Bain & Company estimates AI companies will need around $2trn in combined revenue to fund their planned expansion to meet predicted demand. But they project a shortfall of $800bn. And that worries me.

I do think investors could do well to consider buying all three of these stocks for the long term. But the possibility of big short-term falls keeps me away, at least for now — I remember the dotcom bubble all too clearly.

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Up around 9.5% so far, the S&P 500 may not match the eye-watering 25% gains of both 2023 and 2024, but momentum’s still on the side of equities. 

AMD surged on news that the chipmaker is joining forces with IBM to develop ‘quantum-centric supercomputing‘. The deal marks a major strategic step, signalling that AMD’s keen not only to fight for a bigger slice of the artificial intelligence (AI) and data-centre markets, but also to stake a claim in quantum. 

With IBM as a partner, that ambition suddenly looks more achievable.

The excitement did not stop there. Truist Securities lifted its rating on AMD from Hold to Buy, while also hiking its price target from $173 to $213. Investors clearly liked the story, and the stock rallied strongly. 

Add to this a supportive macro backdrop. With Federal Reserve chair Jerome Powell signalling that rate cuts could be imminent in light of job market concerns, the case for growth tech stocks looks compelling once more. Lower rates mean cheaper financing for data centre expansion, a trend that could directly benefit AMD.

Financial momentum

The numbers also suggest that AMD’s in better shape than some assume. The stock’s already up 36% in 2025, but interestingly, valuation multiples have fallen sharply since their frothy 2023 levels. This suggests that earnings are beginning to catch up with expectations.

The firm’s net margin has doubled to 6.4%, underpinned by improving revenue and profit growth. While it fell short of earnings expectations in both 2023 and 2024, it’s beaten revenue forecasts for five consecutive years – a sign that demand for its products remains strong.

The balance sheet‘s improving as well. Debt dropped from $4.73bn in the first quarter of 2025 to $3.89bn in the second, while free cash flow more than doubled over the same period. 

That kind of financial discipline offers reassurance, particularly in a capital-intensive sector like semiconductors.

A few caveats

Of course, it’s never all plain sailing. AMD still faces intense competition from Nvidia, which dominates the graphics processing unit (GPU) market. Plus, it has the money and clout to take on anything AMD throws its way.

Internal developments have also raised eyebrows. Chief accounting officer Philip Carter resigned recently, while CEO Lisa Su sold 225,000 shares – moves that some investors may interpret as potential red flags.

An emerging contender

So is AMD stock worth considering? I think so. The IBM partnership looks like a genuine attempt to shape the future of computing, while improving margins and cash flow suggest the business has momentum. Add in the prospect of lower interest rates and a fresh analyst upgrade, and the story’s attractive.

That said, competition in chips is brutal, and insider share sales should never be ignored. As ever, investors are best served by diversification. 

For those with an appetite for US tech though, AMD stock could represent an exciting opportunity – one that’s finally aligning innovation with stronger financials.

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To boost things further, the major chip maker has reportedly agreed a deal with the US government to sell its H20 AI chips to China — subject to a 15% levy on all related revenue. While this allows it to maintain access to a lucrative market despite export controls, the levy could compress margins. The financial impact will depend on sales volumes, but strong demand in China may still make the venture profitable.

Impressive financials aside, there are growing signs that a recovering rival could challenge Nvidia’s dominance.

Competing AI chips

In contrast to Nvidia’s massive global stature, AMD (NASDAQ: AMD) is a relatively small player with a market capitalisation of around $300bn. Over the past five years, the AMD share price has gained a respectable but modest 125%, dwarfed by Nvidia’s 1,470% leap.

Yet the tables appear to be turning.

AMD’s sales growth is up 27% year on year, and earnings per share (EPS) are up a staggering 109%. More importantly, the firm is ploughing capital into research and development — its R&D spend now represents 23.55% of revenue, among the highest levels for any tech company on the Nasdaq 100.

Investor excitement has centred around AMD’s upcoming MI450 chip, the company’s first rack-scale, 72-processor AI server system. It sets out to go toe-to-toe with Nvidia’s Rubin architecture. Some analysts initially speculated that Nvidia may delay Rubin to rebalance the competition, but it has firmly denied this, insisting it remains on track for a 2026 release.

Even so, AMD is already gaining traction. A recent event saw the launch of its MI350 and MI400 series chips, including the Helios AI server, and it has secured OpenAI as a collaborator in its MI450 design.

But all this R&D investment brings risk, as it stands to gain or lose based on its MI450 performance. Should the chip underdeliver or fail to gain traction, the share price may suffer just as severely as it recovered this year.

Meanwhile, the threat of geopolitical upheaval is still a notable concern. The US trade tariffs situation remains uncertain and could upset Asia-Pacific supply chains, potentially hurting both AMD and Nvidia’s profits.

No slowdown in AI demand

Demand for AI infrastructure doesn’t show any signs of slowing in the near future. Foxconn, the world’s largest contract electronics manufacturer and a major assembler of Nvidia servers, recently reported strong Q2 results, with profit up 27% to $1.48bn. This result underscores just how hot demand remains.

From a portfolio standpoint, Nvidia remains a formidable and promising stock but so too is AMD, particularly if the MI450 delivers.

Given the sky-high demand, I see no reason why both companies can’t profit. Nvidia appears to lead on scale and innovation, while AMD is emerging as a viable alternative. 

For investors looking for exposure to the AI boom, both stocks are worth considering, in my book.

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Combined with an already high valuation, even small disappointments triggered notable share price declines. Those losses continued until April, but it’s since made a spectacular recovery, climbing 25% in June alone.

I decided to find out what’s driving the recovery — and if it’s sustainable.

A tech-driven market recovery

Investor sentiment across global market’s been improving lately, helped by easing tensions in the Middle East and the Federal Reserve’s increasingly dovish policy outlook. Against this backdrop, the S&P 500 has surged to new highs, largely driven by leading tech and communications stocks.

And AMD hasn’t been left behind. The company’s hoping to ride the wave of exploding demand for graphics processing units (GPUs), with plans to channel sales momentum into higher data centre revenues. Recent forecasts from analysts indicate we could be on the cusp of a massive GPU boom, driven by AI demands, machine learning and hyperscale cloud adoption.

Its new Ryzen 9 9950 X3D and Radeon 9070 series are key growth drivers, while data centres are adopting its fifth-gen EPYC Turin processors and Instinct AI accelerators.

But AMD’s not alone. Nvidia and Broadcom continue to dominate the AI market, posing a real threat to its ambitions. While it recently formed a strategic alliance with HCLTech to help bolster its enterprise AI offerings, execution risk remains high. It will need to capture a meaningful share of the market to justify the training and onboarding costs associated with the partnership.

Financially sound

Looking at the latest numbers, AMD’s financial position looks solid. Its market-cap of £233bn’s supported by a healthy operating cash flow of £3.46bn. It has £57.8bn in equity and minor debt of £4.73bn, translating to a low debt-to-equity ratio of just 0.08.

But the stock’s looking a bit overvalued. The shares trade on a price-to-earnings (P/E) ratio of 105.4, in line with Broadcom but roughly double that of Nvidia. Its price-to-book (P/B) ratio of 4.02’s lower than its key rivals, but it still signals a significant premium to the share price.

Profitability also lags peers, with a net margin of just 8% and return on equity (ROE) of 3.9%. For AMD to command these high multiples sustainably, investors will want to see these figures improve — particularly as it scales data centre and AI-focused revenues.

Final thoughts

Overall, AMD appears to be recovering well and could return to stronger profitability if it manages to secure a sizeable slice of the booming GPU market. But there’s an undercurrent of caution around valuations and the risk of supply chain hiccups if geopolitical tensions flare up again.

For now, given the stretched valuation and relative underperformance on profitability, I’m comfortable holding my shares — but I won’t be adding to my position just yet.

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Strong gains

I’m going to assume the investor bought at the start of December 2022, in response to the release of ChatGPT. The price at the start of the month was $77.50. Currently, the share price is $128.25. This reflects a 65.5% gain in less than three years. The £2k would be worth £3,310.

Even though this is a significant percentage move, some might be slightly underwhelmed that the AI hype hasn’t translated to AMD stock like Nvidia has rocketed higher. After all, when we talk about AI stocks, Nvidia always comes up as the benchmark comparison. For reference, Nvidia’s up 739% during the period in question.

In May 2024, the share price traded above $200, meaning that during the holding period, the investor would have been up 172%. Yet during the stock market fall in April, it traded below $80. So it’s clear that AMD’s a volatile stock that must be treated cautiously.

Interestingly, over the same time period, the Nasdaq index is up 69%. So an investor would currently be in more profit if they had chosen an index tracker. The index’s volatility was smaller, which some people may see as a good or a limiting factor.

Looking ahead

It’s true that AMD has benefitted massively from the AI boom. It makes money primarily by designing (not manufacturing) chips, such as graphics processing units and central processing units. These are key parts to helping power AI models and related workflows. AMD’s also involved in data centres, with product designs to power cloud computing and enterprise workloads.

Looking forward, I think demand for the designs will continue to grow. It outsources production to other companies, meaning that it can create more of a unique selling point by offering the design features. This should help it stay relevant.

However, it needs to ensure it keeps serving not just the big tech companies, but also companies related to gaming and other market segments. Otherwise the risk is that it becomes too focused on just one sector, which makes it more vulnerable if there’s a slowdown in that area.

I feel that AI adoption is only going to increase further and we are by no means finished with the current market cycle. Therefore, I think it’s a growth stock that investors can still consider, despite the rally in recent years.

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Yet the share price has still more than doubled since 2020. And with data centre customers looking for cheaper Nvidia-alternative products, AMD could be getting in a prime position to surge in the future.

With that in mind, let’s explore what the experts are saying and estimate how much a £5,000 investment could grow over the next 12 months.

Battling with competitors

Today, Nvidia continues to dominate the AI chip space among data centre customers. However, despite being a bit slow to capitalise on the AI spending tailwinds, AMD has begun producing increasingly powerful chips to start taking market share back.

The group’s MI300X GPU, launched in December 2023, has started closing the performance gap between AMD and Nvidia, outperforming the latter’s H100 AI GPU at around half the cost.

Nvidia has since released newer chips that once again have taken the crown in terms of performance with its B100 and the soon-to-be-released B200. And when combined with its CUDA software platform, Nvidia still holds a significant competitive advantage over its rival. But AMD certainly appears to be making progress in offering lower cost alternatives for data centres.

Intel has also started feeling pressure from AMD in the central processing unit (CPU) market as well. In the first quarter of 2025, Intel’s CPU market share shrank from 79.2% to 75.6%, while AMD’s increased from 20.8% to 24.4%. And looking at the new Ryzen AI Pro 300 processor series it offers significantly greater AI performance versus Intel’s competing Core Ultra series.

Time to consider buying?

At a forward price-to-earnings ratio of 28, AMD shares aren’t outrageously expensive, considering its latest results showed a 36% jump in sales paired with a 57% boost to underlying operating income. And if it can continue to make technological strides as a cheaper Nvidia and Intel alternative, this growth could accelerate even further.

With that in mind, it’s not so surprising to see bullish sentiment from institutional investors, with Hans Mosesmann from Rosenblatt Securities placing a $200 price target for AMD stock. Compared to where the shares are currently trading today, that suggests investors might be able to reap a 76% return over the next 12 months, transforming a £5,000 investment into £8,810.

However, as exciting as that prospect sounds, it’s important to note that other analysts aren’t as bullish. Its competitors aren’t going to sit idle while AMD’s R&D team play catch up. And the company could struggle to retain critical talent if Nvidia decides to start poaching with alluring compensation packages and stock options.

Even if that doesn’t happen, the business is also reliant on several key clients. For example, in 2024, 40% of sales came from just two customers. Should the relationship with these clients break down in the future, growth could become a significant challenge.

Overall, I think Mosesmann might be a bit too optimistic with his AMD price target. But the company definitely seems to offer a potentially compelling opportunity in the long run. Therefore, investors may want to consider digging deeper.

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Its five-year performance leaves it trailing Nvidia badly. Still, at 103%, it means the share has more than doubled in that timeframe. As an investor, I would always be happy owning a share that could put in that sort of performance.

So, might the recent run upwards continue – and should I buy some shares for my portfolio?

Short-term momentum may have ended

Over the past week, the AMD share price has moved downwards. That might mean that the surge is over for now, or it could be that the price is taking a breather while the market collectively decides what to do next.

As a long-term investor, though, I am not so interested in short-term gyrations except where they might suddenly offer me a cheap buying opportunity.

What, then, about the long-term investment case here?

AMD shares look pricy

I think a lot is riding on the expectation that AMD’s business performance is set to improve. If it keeps performing as well as it has been lately, I believe the share price could rise further.

At the moment, the stock is trading on a price-to-earnings (P/E) ratio of 82. That is almost double Nvidia’s P/E ratio and far above what I typically pay for a share.

Like many of its peers, AMD has been doing well lately. In the first quarter, revenues soared 36% year on year and net income was up a stunning 476%.

Clearly, demand for chips has been robust in recent years and I reckon that could continue over the next several years, as AI investment by large firms continues. AMD struck an upbeat tone about the outlook for the second quarter and beyond when delivering its first quarter earnings statement.

Still, that valuation looks crazy to me. I already find Nvidia overpriced – and AMD stock trades on close to double its rival’s P/E ratio.

Great growth story, but not good enough to justify the price

Obviously, very high growth expectations are built into the current share price.

The company is benefitting from a rising tide in its industry and I also credit current management with making the most of that. Its approach to AI has helped position it among the front-runners as AI-related chip demand has grown dramatically.

But it is not the only runner in the race and faces stiff competition. Tariff uncertainty and export controls are a risk to both revenues and profits. On top of that, it remains to be seen whether AI has brought a stepchange in chip demand or just a prolonged one-off ramp-up phase while customers spend heavily on initial installations.

The current valuation of AMD stock offers me nothing like the margin of safety I would want given such risks. So, for now, I have no plans to invest.

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