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Oct. 6 (UPI) — The S&P 500 and the Nasdaq closed at record highs Monday after ChatGPT-maker OpenAI and Advanced Micro Devices reached a mega-deal that ignited a rally, despite the U.S. government shutdown entering its second week.
Chipmaker AMD shares closed 23.71% higher as the tech-heavy Nasdaq Composite rose 0.71% to end the day at a new record high of 22,941.67. The S&P 500 gained 0.36% to close at 6,740.28. Despite record closes for the Nasdaq and S&P, the Dow Jones Industrial Average dropped 0.1%.
AMD, one of Nvidia’s key rivals, announced earlier Monday it had agreed to a multi-year deal to supply chips to OpenAI, which could end-up taking a 10% stake in the chipmaker.
“Excited to partner with AMD to use their chips to serve our users!” Sam Altman, OpenAI co-founder and chief executive officer, wrote in a post on X.
“This is all incremental to our work with NVIDIA (and we plan to increase our NVIDIA purchasing over time),” Altman added.
Nvidia announced last month it would invest as much as $100 billion to help power OpenAI’s new AI models. After Monday’s news of the AMD-OpenAI deal, which boosted tech stocks and optimism for AI, Nvidia’s shares closed down 1%.
“The AI narrative continues to gain momentum,” said Louis Navellier, founder and chief investment officer of Navellier & Associates.
The deal “gives some competition for NVIDIA, which currently dominates AI chips, and accelerates the timeline for data center buildouts,” Navellier added.
OpenAI said it will deploy 6 gigawatts of AMD’s Instinct graphics processing units across multiple generations of hardware for the next few years. The first 1-gigawatt rollout of chips is expected to take place in about a year.
“We have to do this,” OpenAI president Greg Brockman told CNBC’s “Squawk on the Street.”
“This is so core to our mission if we really want to be able to scale to reach all of humanity, this is what we have to do.”
The chipmaker just got a huge vote of confidence from the creator of ChatGPT.
Since the advent of artificial intelligence (AI) in early 2023, Advanced Micro Devices (AMD 25.63%) has been something of a wild card. The increasing demand for graphics processing units (GPUs) that can handle the rigors of AI has been unparalleled, but not all AI chipmakers are created equal.
There’s no denying that Nvidia (NVDA -1.13%) has been the biggest beneficiary of the accelerating adoption of AI, given its status as a market share leader in the data center space, where most AI processing occurs. Nvidia has ridden this unprecedented demand to new heights, becoming the largest publicly traded company in the world when measured by market cap.
While Nvidia stock has soared 1,180% since the dawn of AI, AMD stock has only risen 154% during the same period (as of market close on Friday). The company has been working diligently to stake its claim in the windfall that is AI.
Shareholders were elated when AMD announced a groundbreaking deal with OpenAI that could be a game changer. As a result, the stock gained 30% Monday morning (as of this writing) — and that could be just the beginning.
Image source: AMD.
OpenAI is largely credited with kick-starting the AI revolution, thanks to its development of ChatGPT, the generative AI system that took the technology to the next level. In a press release that dropped Monday morning, AMD announced a far-reaching strategic partnership with OpenAI.
Under the terms of the multiyear, multigenerational agreement, OpenAI will install 6 gigawatts of AMD GPUs. The rollout will begin with 1 gigawatt of AMD Instinct MI450 series chips and rack-scale AI solutions in the second half of 2026. Beyond simply supplying GPUs, AMD will work side by side with OpenAI as a “core strategic compute partner” to create future generations of AI chips optimized for AI applications.
The companies noted that the partnership began with the MI300X and continued with the MI350X series of chips. Many experts believe these processors are a competitive alternative to Nvidia’s advanced AI chips at a lower price, making them ideal for use with the large language models that underpin generative AI.
Perhaps the most eye-opening development is that, as part of the agreement, AMD has issued OpenAI a warrant to purchase up to 160 million shares of AMD stock — equal to a roughly 10% stake in the company — contingent upon the company achieving specific share price targets and OpenAI reaching certain technical and commercial milestones.
The first tranche is scheduled to vest on the completion of the deployment of the first gigawatt of GPUs, with additional milestones at the completion of each successive gigawatt.
In many cases, saying a deal is a game changer is hyperbole, but in this case, I don’t believe it’s an exaggeration. In its recent financing deal, OpenAI was valued at roughly $500 billion, making it the world’s most valuable start-up. Furthermore, the company has quickly ascended the ranks to become one of the largest buyers of high-end AI-centric chips as it works to development its next-generation AI systems.
Assuming things go as planned, this deal provides AMD with a relatively secure revenue stream that the company estimates will be worth tens of billions of dollars. For context, the company generated revenue of nearly $26 billion in 2024, which helps to illustrate the magnitude of the opportunity.
Furthermore, this deal acts as a ringing endorsement for AMD’s processors. For potential buyers of AMD chips sitting on the fence, this could be the catalyst for taking the plunge and adopting the company’s AI solutions.
Some investors have been concerned that the adoption of AI will hit a wall, but there’s simply no evidence to support these assertions. Furthermore, estimates regarding the addressable market for generative AI continue to climb. Big Four accounting firm PwC estimates the market could be worth as much as $15.7 trillion annually by 2030.
If AMD can carve out just a small piece of that massive opportunity, today’s stock price move could be just the beginning. Furthermore, at roughly 35 times next year’s sales, AMD stock is attractively priced relative to the burgeoning opportunity.
Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.