We can call it The AMD Effect.
On the stock market, it often helps to be associated in some way with a company that pops with investors. So it was with electronics manufacturer Sanmina (SANM 22.73%) on Monday, as a business that it’ll be partnering with on an important initiative saw a monster pop in stock price. Sanmina was lifted along with this, as its stock soared to close the day nearly 26% higher.
A not-so-micro development
That associated company is storied chip maker American Micro Devices, which was quite the stock market star with its own double-digit share-price raise. This occurred on the back of a multiyear deal to supply crucial technology to artificial intelligence (AI) company OpenAI, developer of the high-profile ChatGPT app.
Image source: Getty Images.
That deal will see AMD provide current-generation graphics processing units (GPUs) totaling 6 gigawatts. The first delivery is to occur in the second half of next year.
It just so happens that Sanmina and AMD have agreed for the former to buy the latter’s data center infrastructure unit, ZT Systems. That acquisition, agreed to in May, is pending; if it is approved by the relevant regulators, it will see AMD retain ZT Systems’ AI design services.
On top of that, AMD will collaborate with Sanmina as a manufacturing partner of choice for components needed for AI functionalities.
Adding to the bottom line
The AMD/Sanmina arrangement is expected to be accretive to the acquirer’s non-GAAP (adjusted) earnings starting in the first year after the deal closes, Sanmina said when announcing the purchase. Those earnings should grow “as synergies are fully realized over time,” the company added.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.