Bernstein's chip analyst says AMD is his favorite idea after the big drop in semiconductor stocks this year.
On Wednesday, analyst Stacy Rasgon reiterated his Outperform rating for Advanced Micro Devices shares and reaffirmed his $135 price target for the chip maker. AMD stock declined by 1% to $74.46 on Wednesday.
The company makes processors that act as the main computing brains for personal computers and servers. It competes primarily with Intel $(INTC)$.
AMD "is not only taking share, but taking share with better products," he wrote. "I think AMD is about to run roughshod over [ Intel] for at least the next two years if not longer."
The analyst cited AMD's gains in the server market, where it has been flourishing. For its March quarter, AMD said revenue from its EPYC server processor business more than doubled. In comparison, Intel reported 22% year-over-year growth for its data-center segment for the same period. Rasgon noted how AMD's server processors have on average a 40% higher price versus Intel on the back of their higher performance.
Bernstein isn't alone in its optimism for AMD's server business prospects. Last month, JPMorgan said the chipmaker's solid road map and the firm's recent CIO survey suggested the company can achieve 30% to 40% market share in the server processor market over the next few years -- up from 20% this year.
Overall, it has been a tough year for chip stocks as investors have been concerned about softening PC demand and the slowing global economy. AMD shares have fallen by roughly 50% this year, while the iShares Semiconductor ETF, which tracks the performance of the ICE Semiconductor Index, has declined 38%.
But the stock declines are offering a great entry point for investors, according to Rasgon.
"AMD's turnaround is now only just hitting the sweet spot," he wrote. "The recent sizable pullback [is] making the valuation (dare we say) downright attractive."
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