AMD Bounces Back

Just two sessions after dropping 4%, shares of Advanced Micro Devices(AMD Quote - Cramer on AMD - Stock Picks) gained much of that back Tuesday, as an investment analyst boosted his rating and raised his price target on the chipmaker.

Investors jumped into the chipmaker's stock after analyst Adam Parker of Sanford Bernstein upgraded AMD's rating to outperform and lifted his price target to $29.

Shares rose 3% to $23.01 in afternoon trading.

Parker kept his estimates steady for the third and fourth quarters of this year, but he lifted his 2006 earnings target by one-third to 84 cents a share. Parker's previous target, which remains the current consensus target, was 63 cents a share.

He cited "more favorable assumptions about server share gain, gross margins (as server becomes a larger part of the mix) and operating expenses," according to a research note.

He has no disclosures related to AMD and this is the first time he has placed an outperform rating on AMD's stock in his three years of coverage.

He projected that AMD would expand its market share in servers next year by 7 percentage points, to 19%, and that its overall revenue growth rate "will likely be among the highest of all large capitalization stocks in 2006, something which we believe makes the story more secular than cyclical through at least 2006."

Parker said he has changed how he values the company, shifting from a trailing-sales model to one based on expected future earnings, because of the changes AMD has made in its business to consistently generate profits.