AMD is seen as a CPU stock - but it's gaining ground here, too

By Britney Nguyen

Wall Street is underestimating how much Meta will spend on AMD's AI chips, a Citi analyst says

Citi raised its price target and its rating on AMD's stock.

Advanced Micro Devices is currently getting a boost from the surge in demand for central processing units, but one analyst thinks Wall Street is underestimating another major opportunity for the company.

The chip maker (AMD) is "emerging as a legit second source" for graphics processing units and looks "poised to win lion's share" of business from Meta Platforms (META), according to Citi analyst Atif Malik. The tech giant announced a plan in February to deploy up to six gigawatts' worth of AMD's Instinct GPUs as part of a multiyear partnership that is expected to start later this year.

"Most investors currently view AMD as a CPU stock," Malik said in a Friday note, adding his view that the stock is only pricing in about a 60% chance that AMD will reach more than $50 billion in GPU revenue by 2028.

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Malik raised his price target for AMD's stock to $575 from $460 to reflect the further upside he sees from its GPU business, and he moved from a neutral to a buy rating on the stock. The chip maker's stock was up more than 4% on Friday morning to about $510 per share.

"We believe Meta will be a significantly larger customer of AMD's AI products, especially GPUs, than [Wall Street] is expecting," Malik said.

For one, the companies are developing a custom MI1450 GPU, which Malik said will likely offer a lower total cost of ownership for Meta. He estimates that AMD will see $15 billion for each gigawatt deployed from the companies' six-gigawatt deal.

Nvidia (NVDA) currently dominates the market for GPUs, which are crucial for training artificial-intelligence models. However, both companies also face rising competition from custom chips, including Google's (GOOGL) (GOOG) tensor processing units that are co-developed with Broadcom (AVGO).

Malik expects AMD's AI revenue to reach $33 billion in 2027, which would represent growth of 137%, and $50.8 billion in 2028, which would be a 54% year-over-year jump.

Meanwhile, Malik said he's optimistic for "AMD to be the key beneficiary of the CPU renaissance," as its chips lead in performance and features. He lifted his expectations for the total addressable market for CPUs to reach $137 billion in 2030 from his previous expectation for $132 billion.

The rise of agentic AI and the shift to inference, or the process of running AI models, has driven strong demand for server CPUs - a market dominated by AMD and Intel (INTC).

In Malik's view, AMD's Venice CPUs will outperform Intel's Diamond Rapids CPUs, although he still sees success for Intel's offerings. The resurgence of interest in CPUs has been a boon for the struggling chip pioneer.

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And while Nvidia has launched its own server CPU to compete in a previously unaddressed market for the company, Malik expects it to prioritize shipments for GPUs over those for CPUs given its lead in the market for the former.

-Britney Nguyen

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06-12-26 1204ET