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Analyst Blog

Shares of Advanced Micro Devices, Inc. (AMD - Free Report) have been steadily gaining over the last 12 months. The company’s stock yielded a whopping return of 231.8% compared with the S&P 500 that registered moderate growth of only 4.6% over the same period.

The phenomenal positive returns could be attributed to expectations of strong demand for semi-custom and graphics products coupled with Advanced Micro’s datacenter offerings. These are expected to result in new design wins leading to strong revenue growth in 2017 and beyond.

Meanwhile, the company announced a partnership with online retail giant Alibaba Group Holding Limited (BABA - Free Report) for the supply of Radeon Pro GPUs for its cloud services on Friday.

While the partnership will enable Alibaba to provide enhanced cloud services to its customers, it will enable Advanced Micro to record growth in its business of data center chips. Thus, this partnership puts both the companies in a win-win situation.

What this Means for Advanced Micro?

Graphics chips are in high demand in data centers as they are capable of processing information simultaneously. This particular trait enables these chips to handle specific workloads related to image recognition seamlessly.

As per an IDC report, worldwide spending on public cloud services is estimated to reach $195 billion by 2020. Given the huge scope for growth in the cloud space, the company looks poised to witness steady growth in the coming years.

Intensifying Competition

Currently, Advanced Micro trails NVIDIA Corporation (NVDA - Free Report) as the second-largest manufacturer of graphics chips for high-end computing. We note that this deal will enable the company to gain market share in the graphics space.

Zacks Rank & Key Picks

At present, Advanced Micro has a Zacks Rank #2 (Buy).

A better-ranked stock in the broader technology space is Ambarella, Inc. (AMBA - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, the consensus estimate for Ambarella’s current year moved up to $1.54 (from $1.29 earlier) over the last 60 days.

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