The target price of Advanced Micro Devices Inc. AMD was recently increased to $6 from $3.25 by investment firm Canaccord Genuity. In addition, analysts upgraded the stock’s rating to Buy from Hold.



Following the upgrade, Advanced Micro was up by more than 7% to $4.75.



Why the Upgrade?



Canaccord Genuity’s analyst Matthew Ramsay remains impressed with the company’s new efforts to diversify its business and at the same time reduce its expenses through necessary divestitures.



The analyst remains positive about the company’s new initiatives in immersive computing markets like virtual and augmented reality (VR). He believes that this VR technology along with 4K display is a big development to increase the gaming console refresh cycle. Ramsay expects both Microsoft and Sony’s new game consoles to use AMD’s VR-infused chips going forward, thus expanding profits for the company.



Additionally, the analyst remains encouraged by the company’s increasing share in the fastest growing regional data center server market. He also believes that AMD’s new engagements with hyperscale cloud partners will help to generate additional revenue from its Semi-Custom business.



ADV MICRO DEV Price

ADV MICRO DEV Price | ADV MICRO DEV Quote

First-Quarter Numbers & 2Q View



AMD reported decent first-quarter results with both revenues and earnings exceeding the Zacks Consensus Estimate. Also, gross margin of 32.3% was up 279 basis points (bps) sequentially and 68 bps year over year, driven by an improved product mix between business segments.



Moreover, the company provided a solid guidance for the upcoming quarter. Revenues are expected to increase 15% sequentially (+/- 3%) on expectation of higher demand for graphic chips, strong demand for game consoles and the ramp up of the previously announced new business in the second half of 2016. Also, management believes that AMD's datacenter offerings will result in new design wins that will likely deliver strong revenue growth in 2017 and beyond.



Bottom Line



AMD is the second-largest producer of microprocessors, GPUs and chipsets in the world. Strength in graphics, growing semi-custom business, solid datacenter offerings, better utilization of resources and solid embedded business are the major positives for the company.



The company is making all efforts to further strengthen its position in key markets with the introduction of several APUs and GPUs. Its Radeon Technologies Group focuses on the graphics business and on improving its performance in traditional graphics markets. At the same time, the company is taking initiatives in immersive computing markets like virtual and augmented reality, which is a big positive.



However, increasing competition from Intel and execution risks could hurt the profits of the company.



Currently, Advanced Micro has a Zacks Rank 3 (Hold).



Stocks to Consider



Some stocks that have been performing well in the same space are Amkor Technology, Inc. AMKR, AXT Inc. AXTI and Alpha & Omega Semiconductor, Ltd. AOSL. While Amkor Technology and AXT Inc. sport a Zacks Rank #1 (Strong Buy), Alpha & Omega Semiconductor has a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report



ADV MICRO DEV (AMD): Free Stock Analysis Report



AMKOR TECH INC (AMKR): Free Stock Analysis Report



ALPHA&OMEGA SEM (AOSL): Free Stock Analysis Report



AXT INC (AXTI): Free Stock Analysis Report



To read this article on Zacks.com click here.



Zacks Investment Research