Shares of Advanced Micro Devices (AMD 3.46%) shot up nearly 9% on Feb. 24 following the announcement of a partnership with tech giant Meta Platforms (META 2.52%) that could give the chip designer a massive boost.
Meta Platforms is focused on an aggressive build-out of artificial intelligence (AI) infrastructure, which is why it has been striking deals with leading AI chip designers. Just recently, Meta said that it will be procuring millions of chips from AMD rival Nvidia this year. So, its latest deal with AMD isn't surprising as it looks to get its hands on more computing power.
The good news for AMD investors is that the size of the Meta deal could supercharge its growth. But will it be enough for AMD stock to hit $300? Let's find out.
Image source: AMD.
The Meta Platforms contract could be a game-changer for AMD
AMD and Meta have entered into a "definitive multi-year, multi-generation partnership to deploy up to 6 gigawatts" of AMD's Instinct data center graphics processing units (GPUs). The contract will kick in from the second half of 2026, when Meta will start deploying AMD's MI450 data center accelerators to support the build-out of the first gigawatt (GW) of the "Magnificent Seven" company's infrastructure.
NASDAQ: AMD
Key Data Points
Reuters reports that the deal will run for the next five years, indicating that AMD could sell an average of 1.2 GW of its AI GPUs to Meta each year. Matt Britzman, an equity analyst at British financial services company Hargreaves Lansdown, told Reuters that AMD could generate an impressive $60 billion in revenue over the five-year term of the deal.
The actual figure, however, could be higher. That's because the construction of a 1 GW AI data center reportedly costs $35 billion, according to Bernstein Research. What's worth noting is that 60% of this spending goes toward buying chips to power the data center. So, a 1 GW AI data center needs around $20 billion worth of chips, indicating that AMD's potential revenue from this deal could be much larger.
Will it be enough to send this AI stock to $300?
We have already seen that AMD stock received a big bump following the Meta deal. It is now trading at around $214 a share, about 40% below the $300 mark. This new deal is likely to give AMD's growth a nice shot in the arm in the second half of the year.
Analysts are predicting a 59% spike in AMD's earnings this year to $6.62 per share. However, it may end up doing better than that, driven by the Meta contract. Stronger-than-expected earnings growth for the rest of the year could send AMD stock soaring.
AMD stock has a 12-month median price target of $298, according to 57 analysts covering it. It can easily exceed that mark and head past $300 this year as heavy spending on AI data centers is likely to supercharge its earnings growth beyond Wall Street's expectations.
