Is AMD a Better Buy Than Nvidia After Its OpenAI Deal?
News Summary
AMD has secured a unique deal with OpenAI, providing AI chips in exchange for AMD shares that vest upon reaching specific milestones. This agreement aims to help AMD re-enter the AI chip race and potentially encourage other hyperscalers to purchase its chips through a ripple effect. However, the article suggests this deal appears to be a "last-ditch effort" by AMD to catch up to Nvidia. Notably, OpenAI recently struck a significantly larger partnership with Nvidia, where Nvidia will invest up to $100 billion in OpenAI for at least 10 gigawatts of computing power, substantially more than the 6 gigawatts in the AMD deal. This highlights Nvidia's stronger bargaining power and leadership in the AI sector. Although AMD's stock surged over 40% post-announcement, its 2026 earnings multiple is now nearly 40x, higher than Nvidia's sub-30x. The article advises investor patience, as initial sales from the AMD-OpenAI deal are not expected until the second half of 2026, and the performance of AMD's chips relative to Nvidia's remains to be seen.
Background
The artificial intelligence (AI) computing hardware market is fiercely competitive, with Nvidia, through its Graphics Processing Units (GPUs), dominating the AI chip sector and often referred to as the "king of AI computing hardware." Other semiconductor companies, including AMD and Broadcom, are actively seeking to challenge Nvidia's market position by developing custom AI accelerators and forging strategic partnerships. In 2025, global demand for AI computing power continues to soar, driving massive investments in high-performance AI chips. Major tech players like OpenAI are actively pursuing diversified chip supply channels to ensure ample computing resources for their AI model development and deployment, while also mitigating reliance on a single vendor.
In-Depth AI Insights
What deeper insights do OpenAI's diversified AI chip procurement strategies reveal? - OpenAI's differentiated deals with AMD (chip-for-equity), Nvidia (massive investment into OpenAI), and Broadcom (direct sales) highlight its strong bargaining power and strategic flexibility in the AI arms race. - This reflects OpenAI's multi-faceted approach to securing computing resources: using equity in AMD to incentivize development and conserve immediate cash; locking in long-term, large-scale top-tier computing capacity through Nvidia's substantial reverse investment; and exploring diversification with custom chips from Broadcom. - The strategy aims to mitigate supply chain risks, avoid over-reliance on a single vendor, and foster market competition, ultimately optimizing AI infrastructure costs and performance. Is AMD's deal with OpenAI sufficient to significantly challenge Nvidia's long-term dominance in AI chips? - While AMD's deal sparked a short-term stock surge, its scale and nature (AMD selling chips for potential OpenAI investment) contrast sharply with Nvidia's massive investment into OpenAI (up to $100 billion), underscoring the gap in strategic positioning and financial strength. - Nvidia not only offers leading hardware but also boasts a deeply entrenched AI software ecosystem (e.g., CUDA), creating high switching costs for customers. AMD's deal is a critical step for its re-entry into the core AI market, but truly disrupting Nvidia's position will require significant success in chip performance, ecosystem compatibility, and subsequent customer conversions. - Given OpenAI's substantial commitment to Nvidia, the AMD deal appears more like a "second source" strategy for OpenAI rather than an immediate sign of Nvidia's displacement. How should investors evaluate the risks and opportunities behind AMD's current valuation surge? - AMD's significant stock price increase post-announcement has pushed its 2026 forward P/E to nearly 40x, making it expensive, especially since sales revenue from this deal is not expected until H2 2026 at the earliest. - Investors need to weigh AMD's long-term potential for AI chip market share expansion against the uncertainty of short-term earnings growth. Currently, Nvidia significantly outperforms AMD in financial results and the breadth of its hyperscaler partnerships. - Chasing the stock at current highs carries considerable risk until AMD's chip performance and market acceptance are proven. A more rational strategy would be to await clearer market assessment of the new agreement's impact or seek more attractive entry points during a price pullback.