Why AMD Shares Could Fly to $5

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Advanced Micro Devices  (NASDAQ: AMD  ) gained 3% this morning after Canaccord Genuity resumed coverage on the semiconductor company with a buy rating.

So what: Along with the bullish call, analyst Matthew Ramsay planted a price target of $5 on the stock, representing about 23% worth of upside to yesterday's close. So while momentum traders might be turned off by AMD's price sluggishness over the past year, Ramsay's call could reflect a sense on Wall Street that the concerns surrounding its growth trajectory are becoming overblown. 

Now what: According to Canaccord, AMD's short- and long-term risk/reward trade-off are both quite attractive. "AMD's diversification strategy positions the company to drive solid top-line growth and a return to sustained profitability despite PC market headwinds," said Ramsay. "In fact, we are comfortable with the lower gross margin of recent sales, with shared R&D costs and minimal marketing expense for semi-custom gaming designs making this new business accretive at the operating line. Long term, ARM servers offer opportunity for reentry into a growing $12B+ market and an attractive call option on AMD shares. Nearer term, we believe consensus underestimates GPU share gain and new semi-custom opportunities." Given AMD's highly volatile shares and still-shaky competitive position, however, I'd wait for a much wider margin of safety before betting on those bullish beliefs. 

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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