Advanced Micro Devices (AMD 1.75%) is meeting the insatiable demand for advanced chips needed for artificial intelligence (AI). After signing a major deal with OpenAI, the stock has surged 100% year to date. Investors might be hesitant to buy a stock after a sharp rally, but the company's momentum and valuation leave room for more upside in 2026.
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Why AMD stock can climb higher
On its third-quarter earnings call, AMD reported a 36% year-over-year increase in revenue, driven by AI data centers, servers, and PC demand.
The recent deal with OpenAI is a major growth catalyst for AMD. The deal calls for AMD to supply 1 gigawatt worth of its new Instinct MI450 chips starting next year and expanding up to 6 gigawatts over the long term. Other major tech companies like Microsoft and Google are also increasingly using AMD's chips, further validating AMD's competitive position.
NASDAQ: AMD
Key Data Points
Wall Street analysts anticipate AMD's earnings per share growing to $9.62 by 2027. If the stock continues to trade at the same forward price-to-earnings multiple of 61, the stock could be worth $586 in two years. A lower multiple of 35, would still put the share price at $336.
Based on its momentum, AMD remains a compelling stock to consider to profit off the growing demand for AI chips.
