The Big Rally in Shares of Advanced Micro Devices

NEW YORK ( TheStreet) -- Here's your fantasy investment outcome for today, and it's a doozy.

After a bad miss in earnings per share in the third quarter 2012 a certain well-known semiconductor company's shares tumbled more than 60%. You noticed, and as shares fell towards the eventual 52-week low you made a big speculation and bought 5,000 shares at $1.99 per share.

Then, yesterday, you noticed it opened about 6% higher from the previous closing price. You continued watching the ticker and by the time the price had soared to $4.44 you sold your shares.

Your profit was a tolerable $24,500 minus commissions for buying and selling. You may have some short-term capital gains tax to pay but that's a problem you don't mind facing.

This kind of windfall may have occurred to a number of investors who have been patiently holding shares of Advanced Micro Devices ( AMD) for the past 10 months or so. AMD closed Thursday at $4.45.

The kicker Thursday was some analysts boosted the chipmaker's ratings and price targets, mostly due to its deals to supply processor chips for Sony's ( SNE) PlayStation 4 and Microsoft's ( MSFT) Xbox One.

As you can learn at the company's fascinating Web site, AMD is a force to be reckoned with.

It describes itself as "...a semiconductor design innovator leading the next era of vivid digital experiences with its groundbreaking AMD Accelerated Processing Units (APUs) that power a wide range of computing devices."

To that end, Sony's PlayStation 4 and Microsoft's Xbox One will be ready for eager gamers before the start of the holiday season. Both will utilize AMD's state-of-the-art processor chips for the game consoles.

This prompted an analyst at Bank of America Merrill Lynch to upgrade AMD to buy from underperform and increased its price target to $6 from $2.50.

To sweeten the upward momentum of AMD shares, Canaccord-Genuity's Bobby Burleson upped his rating to buy from hold and increased his price target to $5 from $3.

Bank of America's Vivek Arya told clients the agreements with Sony and Microsoft might turn AMD "into a profitable, diversified company with a multi-year recurring revenue stream."

Arya believes enthusiastic demand for new game consoles should help to offset any possible competition from some of the gaming apps used by consumers on their smartphones and tablets.

In his note to clients Arya estimated AMD may start to feel the positive financial impact of the deals as soon as the third quarter of this year.

It's been a bumpy road for AMD shareholders over the last five years as the chart below makes abundantly clear. When you look at the trailing twelve month revenue per share line you see why.

AMD Chart AMD data by YCharts

If you'd purchased shares in the first half of 2009 and held until now you're likely to be just breaking even. Yet, Thursday's news on AMD bodes well for the next few years.

As the analyst pointed out, companies like MSFT and SNE usually wait several years before launching new game consoles. That's why Arya thinks AMD could have "multiple years of exclusivity and profitability in this market."

AMD wasn't able to revel publicly about all this since it's in a "quiet period" before the release of its second-quarter earnings on July 18 after the market closes.

Keen investors may want to study why stocks of companies like AMD do so well so suddenly. If one keeps a close eye on similar publicly traded firms and reads the press releases as well as listens carefully to the earnings conference calls, a familiar pattern may appear.

At the time of publication the author was long MSFT.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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