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AMD is enjoying strong momentum heading into its next earnings report in early November.
AMD’s MI450 Instinct chips launching next year are a major growth catalyst.
Share prices of Advanced Micro Devices (NASDAQ: AMD) soared to new highs recently on news of a transformative deal to supply chips for ChatGPT maker OpenAI. The surge in the share price comes ahead of the company's upcoming third-quarter earnings report, expected on Nov. 4.
Quarterly earnings reports can cause volatility in the share price, but investors will be looking ahead to what management sees coming in 2026. Here's what you need to know to decide whether to buy now or wait until after the earnings news.
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Image source: Getty Images.
The OpenAI deal is another signal that demand for AI is accelerating. Alphabet's Google and others are also investing heavily to secure more data center capacity. As one of the top suppliers of chips for data centers, AMD is enjoying positive investor sentiment around these developments.
While the OpenAI deal puts AMD in a solid position for long-term growth in its data center business, the share price is significantly more expensive relative to the company's earnings than it was a few months ago. It is trading at 63 times 2025 earnings estimates, compared to about 40 before the news.
But this is the time of year when Wall Street starts looking ahead to next year's earnings estimates. AMD is expected to see an acceleration in earnings in 2026 from demand for its data center chips. Using 2026 consensus estimates brings the stock's forward (1-year) price-to-earnings multiple down to a more reasonable 40.
AMD's MI450 Instinct graphics processing units (GPUs) are a major growth catalyst. The stock could double in the next three years based on the consensus estimate calling for annualized earnings growth of 39%. Attractive growth prospects in the AI chip market make the stock a solid long-term buy.
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John Ballard has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Alphabet. The Motley Fool has a disclosure policy.
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