Why Advanced Micro Devices Stock Is Skyrocketing This Week -- Has the Nvidia Rival's Day Finally Come?

Shares of Advanced Micro Devices (NASDAQ: AMD) are flying higher this week. The company's stock has gained 14.2% as of 12:02 p.m. ET on Friday. The S&P 500 and Nasdaq-100 indexes both had major gains in the same period.

The chipmaker announced a significant expansion of its share buyback program this week and revealed a massive deal with a Saudi Arabian artificial intelligence (AI) company.

AMD more than doubles its share repurchases

AMD's board of directors approved $6 billion in additional share buybacks, supplementing the company's existing $4 billion repurchase authorization. The expanded program signals leadership's confidence in AMD's direction and financial health amid the ongoing AI boom.

"Our expanded share repurchase program reflects the Board's confidence in AMD's strategic direction, growth prospects, and ability to consistently generate strong free cash flow," CEO Lisa Su said in a statement.

Image source: Getty Images.

AMD nets a new major partner in Saudi Arabia

On Tuesday, a day before the buyback program was announced, AMD revealed an investment deal potentially worth $10 billion with Humain, a Saudi Arabian AI company. Su visited Saudi Arabia this week to finalize the agreement, which will see AMD provide GPUs integral to Humain's AI applications and the CPUs also needed to run the GPU-laden AI servers.

AMD shows it's got the right stuff

While Nvidia remains the dominant AI chipmaker, the new deal with Humain shows AMD is capable of landing major contracts. It has been in a race to develop GPUs that can compete with Nvidia's powerful offerings, and while it can't match its rival's latest and most advanced chips, it is hoping to capture the still significant market for a more affordable option.

While I don't think AMD will be rivaling Nvidia for the top spot anytime soon, this week's announcements show the company is capable of making the kinds of deals it needs to drive significant growth, and its stock is currently priced better than its rival's. With a PEG ratio -- a valuation metric that shows how fast a company is growing -- of just 0.58, I think AMD is a good pick.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.