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Advanced Micro Devices up after analyst upgrades

NEW YORK (AP) -- Advanced Micro Devices' stock rose Thursday after several analysts boosted the chipmaker's ratings and price targets, thanks to its deals to supply processor chips for Sony's PlayStation 4 and Microsoft's Xbox One.

THE SPARK: Vivek Arya of Bank of America Merrill Lynch lifted Advanced Micro Devices Inc. to "Buy" from "Underperform" and increased its price target to $6 from $2.50. Separately, Canaccord Genuity's Bobby Burleseon upped his rating to "Buy" from "Hold," and hiked his price target to $5 from $3.

THE BACKGROUND: Both Sony and Microsoft provided details about their respective new gaming consoles during the E3 video game conference in Los Angeles in June. Microsoft's Xbox One will retail for $499 and looks to serve as an all-in-one device that lets users watch television, play movies, listen to music and browse the Internet as well as play video games.

Sony's PlayStation 4 will cost $399, with the company saying that it would basically be a "supercharged PC" much like the Xbox. The use of PC chips means the PS4 won't be able to play games made for any of the three previous PlayStations. Players will have to stream older games over the Internet.

Both consoles are set to be released before the holiday shopping season.

THE ANALYSIS: Bank of America's Arya said in a note to clients that the agreements with Sony Corp. and Microsoft Corp. could turn AMD "into a profitable, diversified company with a multi-year recurring revenue stream."

Arya believes that pent-up demand for new consoles from Sony and Microsoft should help to offset any possible competition from casual gaming done by consumers on their smartphones and tablets. The analyst estimates that AMD may start to reap the financial benefits of the deals as soon as the third quarter.

And because the companies tend to wait several years before launching new gaming consoles, Arya thinks AMD could have "multiple years of exclusivity and profitability in this market."

AMD is currently in its quiet period ahead of its second-quarter earnings on July 18 and was unable to comment.

SHARE ACTION: Up 43 cents, or 10.8 percent, to $4.41 in afternoon trading. The shares have traded in a 52-week range of $1.81 to $5.07. The stock ended Wednesday trading up 66 percent since the start of the year.