What happened to the 8% surge in AMD's stock price?

AMD's stock price has surged, closing up more than 8% at $158.74, the highest since November 2021, only about 2% lower than its historical peak. Wall Street is optimistic that demand from tech giants such as Microsoft, Alphabet-C, and OpenAI could boost the sales of AMD's OpenAI chips.

On Tuesday, Barclays analyst Tom O'Malley raised AMD's target price from $120 to $200 (37% higher than Tuesday's closing price), and stated that AMD's OpenAI chip sales this year could reach $4 billion, surpassing $7 billion by 2025.

O'Malley gave AMD a "buy" rating, citing strong demand for AMD's high-end OpenAI chip, the MI300.

In addition, on Tuesday, well-known Wall Street investment bank KeyBanc raised the target prices for both AMD and Nvidia to $195 and $740, respectively. Susquehanna Financial also raised AMD's target price to $170.

At the end of last year, AMD released the highly anticipated new MI300 series OpenAI chips, claiming better performance than Nvidia's H100 graphics card, and secured orders from Microsoft, Oracle, Meta, and OpenAI.

With the optimistic expectations for strong demand for OpenAI chips, tech stock analyst Beth Kindig predicts that next year's shipments of MI300 chips will reach 300,000-400,000 units, while shipments of Nvidia's H100 will reach 1.5-2 million units.

Venture capitalist Jim Breyer said to the media on Tuesday, "They (AMD and Nvidia) have built a software layer around their chips that the companies I invest in cannot do." He is "strongly buying" stocks of Nvidia and AMD.

Analysts point out that AMD is improving its artificial intelligence software and expect cloud providers and tech giants to seriously consider adopting AMD's OpenAI chips.

"We do not underestimate Nvidia's leading position, but we believe the software ecosystem needs a second source to overcome the current challenges," wrote O'Malley.