Is The AMD Stock Rally Warranted?

Advanced Micro Devices stock (NASDAQ:AMD) surged by over 8% in Monday’s trading. The gains come after some notable analyst upgrades on AMD stock and positive takeaways from the company’s Advancing AI event held last week. The stock is now up about 60% since April. So what’s driving the boom in AMD stock?

Image by Pete Linforth from Pixabay

AI Tech Developments

During its AI day event, AMD unveiled its MI350 series accelerators which will be available in the second half of this year. AMD says that the chips will offer four times better AI compute performance compared to the previous generation. The company also gave an early preview of next year’s MI400/450 chips.  AMD is making a broader push to become a full-stack AI computing provider, directly challenging Nvidia by expanding both hardware and software capabilities. The company recently acquired Brium, a startup focused on compiler and AI software optimization.

AMD also purchased Enosemi, which works on silicon photonics and optical interconnects, which are technologies critical for faster, more efficient data movement as AI models get larger. These developments could help bolster AMD’s ROCm software stack. AMD software stack for its AI tools is open source and based on a standards-based approach, unlike Nvidia’s proprietary CUDA ecosystem. This could give the company an edge in offering a flexible, cost-effective alternative to Nvidia’s AI ecosystem.

New Deals

While AMD’s GPUs still lag behind Nvidia’s at the high end, the broader AI boom –  driven by large models like OpenAI’s GPT-4o and China’s very compute efficient DeepSeek R1 – is lifting demand across the board. Enterprises are also increasingly looking to diversify their chip suppliers beyond Nvidia and this could create new opportunities for AMD. The company has been gaining traction with fresh GPU and AI data center deals, including a major $10 billion partnership with Saudi-backed AI firm Humain signed in May. Humain will buy CPUs, GPUs, and software from AMD to build out data centers and AI infrastructure.

AMD also counts seven of the ten largest AI model builders, including Meta, Microsoft, OpenAI, and xAI as partners for training models. That being said, risks remain, particularly as major cloud providers such as Google and Amazon continue investing in their own custom AI chips, potentially limiting demand growth for third-party hardware over time. See our analysis on AMD Valuation: Is AMD Stock Expensive Or Cheap? for more details on AMD’s valuation and how it compares with peers.

The increase in AMD stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 57% in 2021, -55% in 2022, 128% in 2023, and -18% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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