Anthropic’s Massive AI Buildout Is Another Bullish Signal for AMD Stock

Spending on AI infrastructure keeps growing, and Advanced Micro Devices (AMD) keeps emerging in the middle of it. As the latest example, there is news of a 20-year data center deal of Anthropic with Riot Platforms (RIOT) that Wedbush believes will be good for AMD and the AI hardware sector.

Riot will give "a leading frontier AI company" 191 megawatts (MW) of capacity, said to be Anthropic. The tie-up with AMD looks rather interesting, as RIOT currently operates 25 MW of capacity for AMD, has another 25 MW under construction and even more potential AMD capacity that could reach 200 MW. On top of that, AMD has announced a new strategic partnership with Anthropic that involves deployments of up to 2 gigawatts of MI450 Series GPUs in Helios racks.

Together, it all serves as another indicator that AMD is shifting from product announcements to AI infrastructure.

About Advanced Micro Devices Stock

Santa Clara, California-based AMD designs high-performance CPUs, GPUs, adaptive computing products, and AI accelerators. It is one of the largest chipmakers with a market cap of $774.32 billion.

AMD stock has increased 224.8% since the 52-week low of $149.22. At the same time, its price remains 20.5% lower than the 52-week high of $584.73. The increase in the share price stems from growing investor confidence that AMD will become a serious alternative to Nvidia (NVDA) in the expanding AI accelerator market.

However, the valuation is quite high. AMD is trading at 72.91 times forward price-to-earnings and 22.13 times price-to-sales. There is not much room left for any execution mistakes as the investors seem to expect considerable growth from Instinct GPUs, EPYC server CPUs, and Helios solutions.

Nevertheless, high growth rate makes the stock valuation more acceptable. The question is whether AMD will manage to grow its earnings and revenues enough to justify its premium.

AMD Beats on Earnings as Data Center Revenue Doubles

Advanced Micro Devices delivered record Q2 revenue of $11.54 billion, an increase of 50% year-over-year (YOY) and 13% quarter-over-quarter (QOQ). GAAP EPS amounted to $1.66, while non-GAAP diluted EPS rose to $0.48 from $0.68 a year earlier. Non-GAAP operating income grew 245% to $3.09 billion.

The most impressive number was Data Center revenue. It rose by 107% YOY to $6.7 billion, accounting for about 58% of the overall AMD's quarterly revenue. The growth was driven by demand for EPYC processors and Instinct GPUs.

AMD management expects the trend to continue. For the third quarter, AMD forecasted revenue of approximately $13 billion, plus or minus $300 million. At the midpoint, it amounts to about 41% YOY and 13% sequential growth. Non-GAAP gross margin is expected to stay at around 56%.

AMD-Anthropic relationship may become increasingly important for its guidance. AMD has announced its plans of working with Anthropic that involve up to 2 GW of MI450 Series GPUs to be deployed in AMD Helios racks. Also, Helios has been adopted by such customers as Microsoft (MSFT), Meta Platforms (META), Oracle (ORCL) and OpenAI.

The RIOT deal becomes another important puzzle of AMD's infrastructure plans. As Wedbush noted, continuing construction and long-term leasing agreements prove the durability of AI demand. For AMD, it is important as the capacity needed to operate these accelerators is now being secured years in advance.

What Do Analysts Expect for AMD Stock?

Even after a huge rise, Wall Street is bullish on AMD with a “Strong Buy” rating, and a mean price target by analysts is $618.98, while AMD's current price implies potential upside of 27.9%. There is a great dispersion of analysts' expectations. The highest target price of $1,250 indicates 158% possible upside from here.