Shares of Advanced Micro Devices (AMD) saw a notable rise on Tuesday morning, following a significant surge the previous day that marked a 19-month high. This uptick in stock value is largely attributed to a new multi-year supply agreement between AMD and OpenAI, the creator of the widely used AI model, ChatGPT.
Under the terms of the deal, OpenAI has committed to purchasing multiple generations of artificial intelligence chips from AMD. The collaboration is forecasted to yield over $100 billion in new revenue for AMD over the next four years, bolstered by potential partnerships with other clients. Additionally, the agreement suggests that OpenAI might take a 10% stake in AMD, positioning the firm more favorably against its competitor, Nvidia.
AMD’s shares jumped 24% on Monday and were up more than 5% on Tuesday, reaching approximately $215 during trading. This positions AMD for a potential record closing high, with the stock having increased by 77% since the beginning of the year, significantly outpacing Nvidia’s 40% return during the same timeframe.
A technical analysis of AMD’s stock reveals a breakout from an inverse head and shoulders pattern that has been forming, which may lead to sustained buying activity. The relative strength index indicates that while the stock is in overbought territory, it remains below levels associated with previous downturns in November 2021 and March 2024. However, the stock’s closing position close to its low from the previous day suggests potential short-term over-extension.
Investors are advised to monitor two critical overhead areas on AMD’s chart, particularly the $227 range, which aligns closely with the stock’s high from Monday and is just below its all-time intraday high recorded in March of the previous year. Using a technical analysis technique, the measuring principle, analysts project a target of approximately $272—34% above Monday’s closing price—by adding the distance from the head to the neckline of the inverse head and shoulders pattern.
On the downside, key support levels merit attention as well. If a retracement occurs, a level around $174 could present a significant buying opportunity, serving as a crucial support zone following its previous role as resistance. Should a steeper decline transpire, the $150 threshold is another important level to watch, which also aligns with past peaks and could act as a support level due to its proximity to the inverse head and shoulders pattern’s shoulders.
Investors remain optimistic as they navigate through the promising developments surrounding AMD and its strategic tie-up with OpenAI.
