AMD stock surges 5% as Citi sees major AI GPU opportunity with Meta

Advanced Micro Devices shares moved higher on Friday after Citi upgraded the stock, arguing that investors are underestimating the company's potential in the rapidly expanding artificial intelligence graphics processing unit market.

AMD stock was upgraded to Buy from Neutral by Citi analyst Atif Malik, who also raised his price target to $575 from $460.

Shares gained about 5.87% in trading and have more than doubled this year as enthusiasm around AI-related semiconductor demand continues to build.

While much of the recent excitement surrounding AMD has centered on its central processing unit business, Citi believes the company's graphics processing unit strategy could provide an additional growth catalyst over the coming years.

Citi sees growing GPU opportunity

According to Malik, investors continue to primarily view AMD as a CPU company despite the firm's growing position in the AI accelerator market.

The analyst argued that current market expectations do not fully reflect the company's potential to generate substantial GPU revenue by the end of the decade.

"We now see AMD emerging as a legit second source in the GPU market with [the] company poised to win lion's share at Meta," Malik wrote.

Malik estimates that investors are currently pricing in only about a 60% probability that AMD will generate more than $50 billion in GPU revenue by 2028.

A key component of Citi's thesis is AMD's relationship with Meta Platforms.

Earlier this year, Meta announced plans to deploy up to six gigawatts of AMD's Instinct GPUs under a multiyear partnership expected to begin later this year.

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

The analyst noted that AMD and Meta are developing a custom MI1450 GPU that could provide a lower total cost of ownership for Meta's AI infrastructure needs.

Citi estimates AMD could generate approximately $15 billion in revenue for each gigawatt deployed under the six-gigawatt agreement.

AI demand drives higher forecasts

Citi significantly increased its long-term expectations for AMD's AI-related business.

Malik now forecasts AMD's AI revenue will reach $33 billion in 2027, representing growth of 137%.

He expects that figure to rise further to $50.8 billion in 2028, implying year-over-year growth of 54%.

The projections come as demand for AI infrastructure continues to expand across the technology industry.

Although Nvidia remains the dominant supplier of AI GPUs used for training artificial intelligence models, AMD is increasingly viewed as one of the leading alternatives.

The market is also becoming more competitive as companies, including Google, develop custom AI chips in partnership with Broadcom.

Despite growing competition, Citi believes AMD is positioned to benefit from strong spending by hyperscale customers seeking alternatives to Nvidia's products.

CPU business remains a key strength

Beyond GPUs, Citi also remains optimistic about AMD's core CPU business.

Malik said he expects AMD to remain "the key beneficiary of the CPU renaissance" as demand for server processors increases alongside the growth of AI inference workloads.

The analyst raised his estimate for the total addressable CPU market to $137 billion by 2030, up from a previous forecast of $132 billion.

The rise of agentic AI and increased demand for inference computing have strengthened the outlook for server CPUs, a market primarily dominated by AMD and Intel.

Malik expects AMD's upcoming Venice processors to outperform Intel's Diamond Rapids chips, although he also anticipates solid demand for Intel's products.

The broader semiconductor sector continues to attract investor attention.

Citi's upgrade follows Bank of America's recent double-upgrade of Intel to Buy from Underperform, highlighting growing optimism toward chipmakers benefiting from AI-related spending.