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AMD Is Making Progress But Better Visibility Needed to Move the Stock Higher

When Advanced Micro Devices (AMD) released its 7nm processing chips, the semiconductor world knew the new development would shake the industry. While AMD, for some time now, has increasingly taken market share away from rival Intel (INTC) and has posed a larger threat to Nvidia (NVDA), the release of the new chip has made AMD an even more formidable competitor.

Indeed, in a research note issued yesterday, Susquehanna analyst Christopher Rolland remarked that AMD continues to grab market share in the industry. Yet, the analyst remains sidelined on the stock, maintaining a Neutral rating and $34 price target, which implies about 14% upside from current levels. (To watch Rolland's track record, click here)

Rolland says “AMD has surpassed 20% CPU share in desktops,” following the release of its 7nm Ryzen CPU. The new chips compete better against Intel’s, and the smaller size (7nm vs 10nm) makes them more energy efficient, while also priced more competitively.

AMD is also increasingly threatening Nvidia’s place in the graphics market. While Rolland says AMD’s 7nm Navi GPUs contributed to “modest” share gains, the analyst notes “AMD continues to ramp up their consumer GPU efforts,” which will continue to play a role in competing with Nvidia.

However, the big question for Rolland right now is whether AMD has visibility into "massive 4Q sequential growth, or are they setting themselves up for another downward revision?" While the market share story is still progressing, the analyst believes the latter scenario is more likely. Given his skepticism, the analyst remains neutral on the stock.

The majority of the Street sides with Rolland's cautious take on the chip giant. Out of 22 analysts polled by TipRanks in the last 3 months, 8 are bullish on AMD stock, 13 remain sidelined, while only one is bearish on the stock. With a return potential of nearly 11%, the stock's consensus target price stands at $33.17. This suggests that, for now, the bulls still win on AMD. (See AMD's price targets and analyst ratings on TipRanks)