With Advanced Micro Devices (NASDAQ:AMD) eager to catch up with rival Nvidia (NASDAQ:NVDA) in the artificial intelligence (AI) sector, management earlier Tuesday morning announced that it will acquire Nod.ai. The AI startup was founded in 2013 with a focus on machine intelligence. Subsequently, AMD stock popped higher on the news, with options traders signaling “cautious” upside for the technology enterprise.
According to the accompanying press release, AMD’s addition of Nod.ai to its corporate umbrella reflects an effort to expand the tech giant’s open AI software capabilities. Specifically, Nod.ai’s experienced staff — which developed an industry-leading software technology — should help accelerate the deployment of AI solutions optimized for AMD Instinct data center accelerators, along with a host of other AMD processors.
Moreover, the “agreement strongly aligns with the AMD AI growth strategy centered on an open software ecosystem that lowers the barriers of entry for customers through developer tools, libraries and models.”
Per Reuters, Advanced Micro did not disclose the terms of the deal. However, citing data from PitchBook, the news agency reported that Nod.ai — which is based in Santa Clara, California — raised approximately $36.5 million.
In a nod to tech workers, the business unit that AMD created that will house the Nod.ai acquisition will look to expand the team with 300 additional hires this year, with more planned in 2024.
Options Traders Signal Cautious Optimism for AMD Stock
Perhaps not surprisingly, the most unusual options activity for AMD stock in terms of volume spikes relative to open interest centered largely on transactions involving call options. Since the beginning of this year, AMD gained roughly 72%, an impressive performance. However, rival NVDA gained over 220% during the same period, underscoring the need for Advanced Micro to close the gap.
Broadly speaking, Fintel’s screener for options flow — which filters for big block transactions likely made by institutions — reflects cautious optimism that AMD stock will swing higher. At the same time, the smart money also appears to be accounting for tail risk (i.e., significant and unexpected moves) to the downside.
Conspicuously, on Aug. 17, a major trader (or traders) bought 5,772 contracts of the June 21, 2024 $115 call. At the time, open interest came in at 3,746 contracts. As of this writing, open interest stands at a remarkable 11,066 contracts, reflecting burgeoning interest for this option.
Interestingly, though, institutional traders appear to be writing (selling) call options that expire next year and in 2025 with strike prices ranging from $145 to $180. Since the call writers should be obligated to fulfill (sell AMD stock) the contract assuming exercise, this range implies a projected upside ceiling.
On the other hand, major traders are writing put options that mostly land between $70 to $90. Such transactions imply a floor at this range as put writers would be obligated to buy AMD stock upon exercise.
Why It Matters
Interestingly, analysts rate AMD stock a strong buy with a $137.48 average price target. The high-side projection calls for a price of $160 per share, aligning with the implications of the sold calls. Further, the downside risk sits at $95, also roughly aligning with options trading dynamics.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
