Advanced Micro Devices (AMD) - Get Report should benefit after Nvidia (NVDA) - Get Report posted strong earnings results, said an RBC Capital Markets analyst, who raised AMD's price target for the second time in a week.
Shares of AMD at last check were 1.2% higher at $55.16. Nvidia shares advanced 7.2% to $290.31.
Analyst Mitch Steves, who rates AMD outperform, raised the Santa Clara, Calif., chipmaker's target to $66 from $63.
He said in his latest note to clients that "after results posted by Nvidia, ... the market for gaming chips remains healthy, and despite issues surrounding the coronavirus, the 2020 results (full year) will not be impacted."
Nvidia shares traded at an all-time high Friday after a surge in data-center revenue helped the chipmaker, also based in Santa Clara, post stronger-than-expected fourth-quarter profit.
"We are increasing our multiple on AMD due to higher conviction in overall demand for gaming and server chips," Steves said.
AMD "has made the correct long-term bets that will pay off over the next 12 months and beyond."
Steves added that "gaming will be a steadier secular growth business for AMD."
"As games continue to become more complex and game sizes increase to accommodate improved graphics, the demand for GPUs will likely increase," he said.
"This should be an average-selling-price tailwind and a gross/operating-margin tailwind as well. Unlike the server market, ... there is less risk to the downside on the gaming side considering that there are only two graphics-processing-unit players (Nvidia and AMD)."
Notably, Steves added, "Nvidia will remain the market-share leader, but a rising tide, in this case, should lift both companies."
Steves said "AMD had a history of balance-sheet issues when it was an unprofitable entity."
"This has recently improved but remains a threat if revenue growth is not seen," he said.
On Tuesday, Steves raised his target price on the semiconductor giant's shares to $63 from $53 and affirmed his outperform rating.