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 (AMD -0.35%) 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.
