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When we re-upped our call on Advanced Micro Devices in February, we said the stock, then at $1.91 a share, had the potential to nearly double in a year (“AMD’s Big Upside,” Feb. 20, 2016).

It was a bold call, but not bold enough. With an almost five-fold surge to $11.59, AMD is the best-performing stock in the Russell 2000 in 2016.

AMD

Does AMD still have room to run? While some of the recent gain—the shares are up 60% since Nov. 1 alone—probably is driven by fund managers who want to show the stock on their books as of Dec. 31, we think AMD could add 15% or more in the next year, although it might pull back first. Current shareholders might want to hang on, but new investors would be better off waiting for a pullback; some investors could take gains in January, given expectations that tax rates will fall in 2017.

The company, which Canaccord Genuity analyst Matthew Ramsay describes as “a miraculous turnaround,” reported a quarterly profit for the third quarter of 2016, its first since the fourth quarter of 2014—just as AMD CEO Lisa Su predicted in these pages. Reporting profits should become routine for AMD, given a renegotiation of its debt and the planned introduction of a suite of new products.

In an earlier feature story, we noted that the company was migrating away from commodity chips for PCs—and that Jana Partners and George Soros were both recent buyers (“AMD Bets With a New Stack of Chips,” Jan. 31, 2015). We predicted the stock, then $2.61, could rise 75%.

AMD has since moved into higher-performance, and higher-profit-margin chips for the likes of Alphabet’s Google (GOOGL) and Alibaba (BABA). In a recent report, Ramsay cited the company’s “potential in the data center GPU accelerator market and…focused investments in deep-learning computing for the automotive market.” He says AMD’s new chips could capture margins of 40% to 60%—double that of its current portfolio.

He has a price target of $13 on the stock, or 25 times his non-GAAP estimate of 60 cents a share in earnings (discounted by 10%) by 2020. But he cautions that the range of estimates on Wall Street is wide, and warns against trying to trade the stock on quarterly results.

AMD, Ramsay says, is in the “sixth or seventh inning” of its remarkable performance. Although there might be some bumps in the road, the stock has more upside.

—Robin Goldwyn Blumenthal

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