Citigroup raises Advanced Micro Devices target price to $215 from $180

Citigroup raises Advanced Micro Devices target price to $215 from $180

Citigroup has recently raised its target price for Advanced Micro Devices (AMD) stock, increasing it from $180 to $215. This significant upward adjustment follows a series of strategic partnerships and market developments that have bolstered AMD's position in the semiconductor industry.

The catalyst for this revision is AMD's recent deal with OpenAI, a leading AI startup. Under the agreement, OpenAI will deploy up to 6 gigawatts of AMD's Instinct GPUs over the next several years. This marks one of the largest GPU deployment agreements in the industry and underscores AMD's growing prominence in the AI hardware market. The partnership also includes a warrant for OpenAI to buy up to 160 million AMD shares, which could give OpenAI a significant ownership stake in the company .

This deal is part of a broader trend where OpenAI is diversifying its chip supply, moving away from a reliance on Nvidia. The partnership with AMD comes just two weeks after OpenAI signed a $100 billion equity-and-supply deal with Nvidia, indicating a shift in the AI chip market. Nvidia shares slipped slightly on the news, reflecting the competitive dynamics between the two companies .

Additionally, AMD has been making strides in the AI accelerator space, which has traditionally been dominated by Nvidia. The OpenAI deal is seen as a turning point for AMD, as it gains a flagship customer in one of the biggest names in generative AI. CEO Lisa Su has stated that this partnership advances AMD's role in building the infrastructure powering AI's next wave .

Citigroup's analysts have noted that the deal with OpenAI is part of a broader strategy for AMD to capture a larger share of the AI chip market. The company's recent collaboration with Intel and Nvidia, where Nvidia will invest $5 billion in Intel's common stock, also highlights AMD's competitive positioning. Despite these partnerships, Intel remains the industry leader in PC CPUs, and its potential to recapture market share is a factor to watch .

The stock market's reaction to these developments has been mixed, with AMD's shares surging more than 35% following the OpenAI announcement. However, the overall uncertainty surrounding AMD's valuation remains high, as indicated by Morningstar's analysis, which places the stock at a 99% premium to its fair value .

Investors will be closely monitoring AMD's next earnings report to gauge the impact of these strategic moves on the company's financial performance. The earnings report is expected to provide insights into GPU shipments and demand, which are critical indicators of AMD's market position and future prospects.