Why AMD's new $1 trillion valuation makes perfect sense

AMD, the US chip company, achieved a major milestone on Monday by reaching a valuation of US$1 trillion, becoming the fourth US chipmaker to reach such a valuation after Nvidia, Broadcom, and Micron. The surge in AMD's stock value was primarily driven by the booming investment in artificial intelligence (AI). AMD's shares surged by 10 percent, adding approximately US$200 billion to the company's valuation within a week.

The company announced a significant jump in revenues, with a 50 percent increase in second-quarter earnings to US$11.5 billion, largely due to a more than doubling of data center revenue. AMD expects data centre sales to continue accelerating in the second half of 2026, as reported in their earnings release in early August. Thomas Hayes, chairman at Great Hill Capital LLC in New York, noted that money is flowing back into the AI sector, which contributed to the positive sentiment surrounding chipmakers.

The higher oil prices, stemming from the US-Iran conflict, and expectations of higher-for-longer interest rates, initially dampened enthusiasm for AI spending by hyperscalers. However, investors now believe that AI is the only area that can thrive during an economic slowdown caused by Federal Reserve-induced interest rate hikes.

The surge in AMD's stock value was mirrored by other chip stocks, with rivals Intel and Qualcomm also experiencing substantial gains. The broader chips index saw an increase of 2.7 percent, reaching its highest point in over a month.