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AMD Higher as Goldman Upgrades to Buy on Valuation

AMD "presents a compelling opportunity to participate in a multiyear share gain and margin expansion story,” Goldman said, upgrading the stock.

Advanced Micro Devices  (AMD) - Get Advanced Micro Devices, Inc. Report shares rose on Wednesday after Goldman Sachs upgraded the semiconductor maker’s shares to buy from neutral and added them to Goldman’s Conviction List.

Goldman analysts acted based on AMD’s valuation. The stock has dropped 13% since Sept. 1. 

It recently traded at $79.09, up 3.3%. It had risen 4% year to date through Tuesday. The stock has doubled off its 52-week low of $35.52, set almost exactly a year ago. And it's off 19% from its 52-week high above $94, set in early September.

Goldman analysts, led by Toshiya Hari, lifted their share-price target to $96 from $84.

“The recent correction in the stock … presents a compelling opportunity to participate in what we expect to be a multi-year share gain and margin expansion story,” the analysts wrote in a commentary.

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“We see 1) share gains across the personal-computer and server central-processing-unit markets, 2) gross-margin expansion, and 3) [operational expenditure] leverage, driving above-consensus earnings growth.”

Morningstar analyst Abhinav Davuluri also expressed enthusiasm for AMD after its earnings report last week and news of its agreement to buy chipmaker Xilinx  (XLNX) - Get Xilinx, Inc. (XLNX) Report for $35 billion.

“We are raising our fair value for AMD to $67 per share on a probability-weighted basis,” he wrote in a commentary.

“We assess AMD’s stand-alone [minus Xilinx] fair-value estimate at $57 per share, up from our prior $31 estimate.”

As for Xilinx, “we like the deal for AMD, as it is using its rich shares to fund the deal,” Davuluri said. 

“We view this deal as a way for AMD to bolster its product portfolio with the leading [field-programmable gate array] franchise to drive growth and better diversify its revenue, as Xilinx products are complementary to AMD.”