Not just CPUs! Citigroup upgrades AMD rating to "Buy," declaring the official rise of the second growth pole in GPUs

According to the Zhitong Finance APP, thanks to the market's high attention to CPUs, chip giant AMD (AMD.US) has performed strongly this year. However, Citigroup analysts believe that investors should not overlook its potential in GPUs.

In a recent research report, the firm upgraded AMD's stock rating from "Neutral" to "Buy," with a target price significantly raised from $460 to $575.

So far this year, AMD's stock price has more than doubled, primarily driven by demand for its AI-optimized CPUs. However, Citigroup analyst Atif Malik's optimistic outlook is more based on AMD's GPU sales prospects—especially as the company competes head-to-head with market leader NVIDIA (NVDA.US).

Malik pointed out in the report that the current market's valuation logic for AMD is misjudged. Most investors still view AMD as a CPU concept stock, and the current stock price only implies about a 60% probability that AMD will achieve over $50 billion in GPU revenue by 2028. In his view, this severely underestimates the wave AMD is about to create in the GPU market.

Meta's $10 Billion Deal: Custom Chips Open Substantial Volume

The core catalyst for Citigroup's significant rating upgrade comes from AMD's strategic cooperation agreement with social media giant Meta Platforms (META.US). According to disclosed information, the two parties signed a multi-year supply agreement for AI data center GPUs with a computing power scale of 6 gigawatts, along with 160 million common stock warrants. The first batch of 1 gigawatt will be delivered starting in the second half of 2026 and will continue into 2027.

Citigroup estimates that each gigawatt of supply corresponds to approximately $15 billion in revenue for AMD. This means that just from Meta as a client, this cooperation framework could potentially contribute nearly $90 billion in revenue to AMD. Malik predicts in the report that AMD, with the custom MI450 chip developed in collaboration with Meta, which offers a lower total cost of ownership, is expected to capture the "largest share" in Meta's future GPU procurement.

"We now believe that AMD is becoming a truly reliable second choice in the GPU market and is likely to win the majority of market share from Meta," Malik wrote.

Based on the aforementioned cooperation and broader market expansion expectations, Citigroup has significantly revised its financial forecasts for AMD's AI business, expecting it to reach $33 billion in 2027 (a year-on-year increase of 137%) and $50.8 billion in 2028 (a year-on-year increase of 54%).

CPU Side Still Maintains Strong Firepower

It is worth noting that analysts are not solely optimistic about AMD's bet on the GPU sector; its CPU business fundamentals continue to receive favor from Wall Street.

After the Taipei International Computer Show (Computex), Malik raised his model forecast for the total addressable market (TAM) for CPUs by 2030 from $132 billion to $137 billion. He still believes that AMD will continue to be a "key beneficiary of the CPU revival wave," with advantages including leading performance, increased core counts, x86 instruction set architecture, a richer SKU product line, and comprehensive capabilities in both multi-threaded and single-threaded workloads In comparing AMD's upcoming Venice CPU with competitors NVIDIA (Vera) and Intel (Diamond Rapids), Malik believes AMD's product is superior. He expects the AMD Venice series to cover approximately 8 to 256 cores, capable of supporting "multiple workloads," while maintaining performance leadership and meeting diverse computing needs.

Just a day before Citigroup raised its target price for AMD, Bank of America had already increased AMD's target price from $500 to $560 and listed AMD as a preferred stock in the CPU sector. Bank of America analyst Vivek Arya significantly raised the 2030 server CPU TAM estimate from the previous $125 billion to $170 billion, believing that AI for agents will be a strong catalyst for demand in this sector