Advanced Micro Devices, Inc. (NASDAQ: AMD) stock has tanked more than 21 percent in the past month after the company said it expects a 15-percent sequential drop in revenue in the fourth quarter. But while AMD’s weak guidance sent some investors running for the hills, at least one Wall Street analysts says it’s time to buy the dip.

The Analyst

Bank of America analyst Vivek Arya maintains a Buy rating and $18 price target for AMD stock.

The Thesis

After meeting with company management, Arya is convinced that AMD’s positioning in the server processor market gives the stock a major source of upside in coming quarters.

According to Arya, AMD’s EPYC is on track to begin deployment in Q4 and ramp in 2017. AMD could soon pose a serious threat to Intel Corporation (NASDAQ: INTC)’s dominant share of the $15 to $20 billion server processor market. Management reiterated the company’s previous near-term goal of reaching 10 percent market share of this massive market, a share that could represent up to $2 billion in sales annually.

AMD wants to eventually return to its prior peak CPU market share of 27 percent. The previous peak came way back in 2006 when AMD’s Operon chips made a huge impact on the market. Last time AMD took a bite out of Intel’s market share, Intel responded by dropping its average sales price by 25 percent. However, Arya said there are several key differences this time around.

Arya said Intel’s Data Center Group “is more significant to INTC in terms of profitability than it was 10 years ago, and hence INTC would be careful cutting price aggressively.” In addition, Arya said AMD “is not principally competing on price – instead competing on performance.”

Price Action

AMD stock was up 0.6 percent on Tuesday morning, while Intel stock was down 0.5 percent.

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Image Credit: Rico Shen, CC BY-SA 3.0, via Wikimedia Commons