The server market has helped drive Intel's ( INTC) exceptional revenue and margin performance of late. As the economy recovers, more companies are upgrading their data centers with Intel's high-end server products.

Based on these trends, we have increased our Intel price estimate from $23.37 to $24.78. This forecast reflects our cautious view of Intel's growth prospects after this year, which are constrained by competition from rival AMD's ( AMD) relatively cheaper and less power-hungry servers. But if demand for high-end servers remains strong going forward, we see an additional upside of 4% to 5% to Intel's stock price over the Trefis forecast period. Our analysis follows below.

Server Refresh Cycle Takes Hold

Intel reported staggering 42% growth in data center revenues (including microprocessor and chipset sales) for the second quarter of 2010. For example, the IP data center segment grew by 170% year-on-year, reflecting the fact that many companies are buying high-end servers that can handle the massive Internet traffic associated with cloud-based computing services.

Corporate customers have been snapping up Intel's high-priced, high-performance servers, driving up the average selling price of server microprocessors . High-end servers, mostly based on 32-nm process technology, command premium prices because they offer better performance and lower power consumption.

Demand for servers is rising as companies realize the long-term benefits of renewing their server infrastructures. This requires investment in high-end servers, but offers major benefits in terms of reduced power consumption, better performance and reduced space requirements. With the economy improving, more companies are willing to spend money on such upgrades.

For 2010, we forecast sharp growth in average processor prices and modest growth in Intel's server processor market share. We have factored server market growth into our $24.78 price estimate for Intel's stock. However, we remain cautious regarding growth prospects beyond 2010 because of robust competition from AMD.

Beyond 2010, we forecast relatively flat growth in Intel's average selling price for server processors and slightly declining market share. But it's possible that Intel will continue to experience very high demand for its server processors. In this scenario we see a 4% to 5% potential upside for Intel's stock price due to market share gains and rising server processor prices.

You can see the complete $24.78 Intel will benefit if this trend continues Trefis price estimate for Intel's stock here .

Trefis is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.

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