Spending on artificial intelligence (AI) technology is accelerating among the biggest and most profitable companies in the world. The stellar performance of some of the leading chip stocks could be sending strong signals to investors that this is still the early innings of a long-term buildout in AI infrastructure.
Advanced Micro Devices (AMD -1.70%) soared to new highs recently after announcing a deal to supply OpenAI, the company behind ChatGPT, with 6 gigawatts worth of chips over the next several years. Here's what this says about AMD, and why it's a great stock to buy before 2026 begins.
Image source: Advanced Micro Devices.
Is AMD the next Nvidia?
AMD has been trailing Nvidia for years in the graphics processing unit (GPU) market, but it has quietly been putting the pieces together to catch up. Now it offers a more comprehensive stack of solutions, including data center GPUs, software programming models, and rack-scale systems.
AMD's hardware has been deployed by Microsoft, Meta Platforms, Oracle, and Elon Musk's Tesla and xAI. OpenAI will deploy AMD's upcoming Instinct MI450 series of GPUs next year. Even before the deal, analysts were expecting more than 20% year-over-year growth in revenue next year, but those estimates will likely get revised higher.
At the current share price of $234, the stock trades at a forward price-to-earnings multiple of 37 on 2026 earnings estimates, which may not fully reflect the OpenAI deal yet. That is very reasonable for a company expected to deliver more than 30% annualized growth in earnings in 2026.
