Advanced Micro Devices (AMD -1.25%) jumped 23.7% on Oct. 6 in response to a blockbuster deal with OpenAI. The hyperscaler is taking up to a 10% stake in AMD and seeking 6 gigawatts (GW) of graphics processing units (GPUs).
Here's why the deal is meaningful for AMD investors, how it fits into OpenAI's other big moves, and a better semiconductor stock to buy instead of AMD right now.
Image source: ASML.
OpenAI's road to 10 GW
The first GW of AMD Instinct MI450 GPUs is expected to be deployed in the second half of 2026. As my colleague Beth McKenna points out, this is the same time frame as Nvidia's (NVDA 1.68%) deal with OpenAI.
In late September, Nvidia entered into a $100 billion strategic partnership with OpenAI to help build out its 10 GW of data centers, which are purpose-built for artificial intelligence (AI).
When Broadcom (AVGO -0.26%) reported earnings in early September, it mentioned a $10 billion order with a former prospect that evolved into a qualified customer. It's likely this customer is OpenAI. Broadcom is unique because it makes AI accelerators called XPUs, which are advanced application-specific integrated circuits (ASICs) designed for task-specific functions. Whereas GPUs, like those made by AMD and Nvidia, are more versatile, making them better suited for AI training, inference, and high-performance computing.
It's important for investors to understand that OpenAI isn't choosing AMD over Nvidia or Broadcom, but rather, including AMD as a key chipmaker needed to build out its AI infrastructure.
Similarly, OpenAI formed a $300 billion cloud computing deal with Oracle (ORCL 3.10%), but it still works closely with other clouds like Microsoft (MSFT -0.54%) Azure.
A coiled spring for sustained AI chip investment
With massive, multibillion-dollar AI deals surfacing seemingly weekly, investors may be wondering how to factor these developments into a company's investment thesis. Instead of deciding between AMD and Nvidia -- or Oracle and Microsoft -- some folks may prefer to invest in a company that benefits from AI regardless of which chipmaker or cloud computing giant wins contracts.
Enter ASML Holding (ASML -0.76%), which makes the most advanced photolithography machines in the world. These machines print circuit designs layer by layer onto silicon wafers. Lithography is the most complex step in modern chip production, even more complicated than deposition and etching.
Semiconductor equipment makers like ASML, Applied Materials, and Lam Research, as well as foundries like Taiwan Semiconductor Manufacturing (TSM -1.52%), are ways to bet on sustained AI investment, regardless of changes in chipmaker or cloud computing market share.
OpenAI will buy chips and demand computing power to train its large language models. To fill this demand, companies like AMD, Nvidia, and Broadcom will go to Taiwan Semi with their chip designs, which Taiwan Semi will manufacture using equipment made by companies like ASML. So, although ASML isn't designing or manufacturing chips, it still plays an integral role in modern chip manufacturing.
ASML and its competitors produce deep ultraviolet (DUV) machines, which are commonly used in semiconductor manufacturing. But what puts ASML in a league of its own are its extreme ultraviolet EUV) machines, which are significantly more advanced than DUVs. EUVs use mirrors to reflect light rather than lenses, which refract light. By bouncing light off mirrors, ASML machines achieve a small wavelength, which allows them to print more precise features on chips.
EUV machines can cost hundreds of millions of dollars and take months or even years to transport and assemble. However, they will be increasingly needed to handle the growing volumes of AI chip orders. It's still early in the rollout of these machines. But as ASML ramps production, EUV machines should make up a larger percentage of its sales mix, driving margin expansion and revenue growth.
Investing in AI with a long-term mindset
A lot of AI stocks, ASML included, have run up a lot in recent months, which has expanded valuations. It wouldn't be surprising if there were an eventual sell-off so that fundamentals can bridge the gap between expectations. At times like these, some investors may be tempted to sell growth stocks and rotate into dividend and value stocks. But long-term investors know that it's better to let your winners run, or simply trim a position to achieve an allocation that aligns with your risk tolerance rather than owning a lot in a stock or none at all.
With AI stocks, investors need to have a multiyear or decade-plus investment time horizon. Projections look amazing for AI stocks, with companies like OpenAI announcing big deals left and right. However, that spending needs to pay off. Otherwise, investors will question whether companies are overextended and the industry is prone to a downturn.
ASML stands out because it has a monopoly on a product that will be needed for decades to come. It is well-positioned to endure a multiyear downturn and is less vulnerable to competition. ASML isn't immune to trade and tariff policy, but again, these factors don't impact its underlying investment thesis.
AMD's deal with OpenAI is exciting, but folks seeking a more balanced investment opportunity may want to take a closer look at ASML.
