AMD’s market share in the server and desktop chip market will surge in the next two years, according to Bank of America Merrill Lynch.

The firm's analyst, Vivek Arya, raised his price target for the company's shares to $20 from $17, representing 27 percent upside to Friday’s closing price. He said AMD will likely generate higher profit margins from its new products.

He forecasts the company’s PC and server chip market share in dollars will rise to 5 percent by year-end from 3.6 percent last year. Arya also forecasts 7 percent market share for AMD in 2019. The company’s new server chips are priced two to three times higher than its older products, he noted.

"We believe the street continues to underappreciate the pricing/GM [gross profit margin] upside from AMD’s mix-shift to newer Ryzen and EPYC server products, which can more than offset any risk from graphics cards sold to crypto miners," Arya said in a note to clients Monday. "Execution is key, and Intel's incumbency and resources cannot be taken lightly, but we believe AMD has a generational opportunity to become materially bigger in computing."

AMD shares are down 4.2 percent Monday. Its stock is up 54 percent this year through Friday versus the S&P 500's 3 percent return

Arya reiterated his buy rating on AMD shares. He said the chipmaker is a top small- and mid-cap stock pick for the firm.

The key for AMD is its shift to higher-priced servers. “The low-end of PC market has already been diluted by tablets, while AMD has a much stronger/feature rich portfolio this time in the mid/high end market. In commercial laptops, AMD is selling to the top 3 OEs (Dell, HP and Lenovo) for the first time ever.”