Meta and Rackspace Deals Bolster AMD's AI Ambitions, Even as Valuation Stirs Caution

AMD partners with Meta, Rackspace, and OpenAI to build full-stack AI cloud, but its P/E ratio of 136 raises valuation concerns amid 57% data center revenue growth.

Advanced Micro Devices is racing to cement its position as a full-stack AI infrastructure provider, lining up a string of high-profile partnerships that extend far beyond chip sales alone. The company has locked in Meta as a marquee customer for its next-generation MI450 accelerators, signed a non-binding pact with Rackspace Technology to build a regulated enterprise cloud, and joined forces with OpenAI and Microsoft on an open-source networking protocol. Yet the stock’s meteoric rise – nearly quadrupling over the past year and gaining roughly 80% in recent weeks – has pushed its price-to-earnings ratio to 136, more than three times Nvidia’s, leaving investors to weigh operational momentum against lofty expectations.

From Single Chips to Complete AI Clouds

The deal with Meta underscores just how far AMD has moved beyond discrete graphics processors. The social-media giant plans to build up to six gigawatts of AI compute capacity, and the first gigawatt will rely on customised AMD MI450 accelerators. Meta will also be the lead customer for the sixth generation of AMD’s EPYC server processors, which are already being adopted by AWS, Google Cloud and Microsoft Azure for their fifth-generation EPYC systems. On the memory front, AMD is working closely with Samsung to supply HBM4 high-bandwidth memory for its Instinct GPUs.

Beyond hyperscalers, AMD is targeting regulated industries with a new enterprise AI cloud developed alongside Rackspace Technology. The framework, still in early-stage discussions without a binding contract, aims to serve financial services, healthcare and government clients that demand data sovereignty, governance and operational accountability. AMD contributes Instinct GPUs and EPYC CPUs, while Rackspace provides the managed private or hybrid cloud environment.

Meanwhile, the company’s push into turnkey rack-scale systems is gaining traction. Partnering with Tata Consultancy Services on the Helios brand, AMD offers fully integrated server cabinets that simplify AI deployment for enterprises. Management says demand for these solutions has already exceeded internal forecasts.

Financial Momentum and the Protocol Push

AMD’s data centre business, the core of its growth story, generated $5.8 billion in revenue in the first quarter, a 57% jump year-over-year. Total revenue came in at $10.3 billion, up 38%. For the current quarter, the company guides for approximately $11.2 billion, which would represent roughly 46% growth, with gross margins expected to hover around 56%.

To keep large-scale AI training running smoothly, AMD has joined OpenAI, Microsoft and other technology partners in contributing the Multipath Reliable Connection (MRC) network protocol to the Open Compute Project. MRC distributes data packets across multiple paths rather than a single route, reducing congestion, limiting latency spikes and rerouting traffic quickly during failures – all critical for sprawling training clusters that can span thousands of GPUs.

The Valuation Challenge

Despite the operational wins, the stock’s valuation remains a sticking point. At a P/E multiple of 136 – compared with Nvidia’s 40 – AMD is pricing in a great deal of future success. CEO Lisa Su has telegraphed ambitious targets: annual data centre growth of at least 80%, driven by the ramp of the MI450 and MI455 chips through 2027. Analysts at Wedbush see management confidence in a stronger second-half ramp but remain cautious on the GPU trajectory, noting that strong CPU demand could help buffer any chip delays.

The company’s annual shareholder meeting, held virtually on 13 May, provided a moment to take stock of the progress. The near-term agenda is clear: transform the Rackspace letter of intent into binding contracts, keep the MI450 ramp on schedule, and prove that operating momentum can justify a stock price that has already run far ahead of earnings.