Cloud Computing Surge is good news for advanced micro devices

<p>Advanced Micro Devices (NASDAQ: AMD) was one of the leading stock market players for 2019 and showed gains of over 150% compared to the year. Up to the point where the markets crashed, AMD shares also went bus in 2020. It closed at a record high of $ 58.90 on February 19 for a 28% gain in just the first two months of the year.

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While the new coronavirus pandemic has hit stocks hard, AMD is well positioned to bounce back. All people who work from home and play video games online are putting pressure on cloud services data centers to add servers. This is good news for AMD‘s EPYC enterprise server chips.

Working (and playing) from home is good news for AMD

During the social distancing required by COVID-19, companies have increasingly moved employees to work from home, where possible. At the same time, people starving for entertainment – and millions of children stuck at home due to school closures – have led to a dramatic increase in online gambling. And everyone is watching a lot more streaming video.

Microsoft (NASDAQ: MSFT) reported that it has seen a 775% increase in demand for its cloud services. Netflix (NASDAQ: NFLX) and other video streaming companies are lowering the quality of their streams due to the strain they place on the Internet infrastructure.

This pressure on cloud data centers is good news for companies that manufacture servers. Advanced Micro Devices has recently made an impression on the lucrative data center market with real success. Its EPYC servers take Intel (NASDAQ: INTC), with higher performance and lower energy costs. In November last year, the AMD stock saw news that China’s Tencent (OTCMKTS: TCEHY) is distributing EPYC servers for its cloud services.

Expenditure on cloud infrastructure decreased in 2019; however, the unsurpassed demand due to the coronavirus pandemic is causing cloud providers to crawl to increase capacity. This is an opportunity for AMD to move more of these EPYC servers.

Upgrades by analysts

When the data center market suddenly shifted back to buying mode, AMD saw resultant analyst upgrades last week. On Friday, Northland Capital Markets upgraded the stock to outperform the market, with a target price raised to $ 52.50 from $ 45.

Some risk when launching new consoles

AMD can see more revenue than expected from the current generation of video game consoles. Advanced Micro Devices manufactures the custom processors used by Microsoft’s Xbox One and Sony’s (NYSE: SNE) PlayStation 4. Sales of the two consoles fell sharply with the next launch of the next generation of consoles. But with the sudden increase in the popularity of video games, sales seem to be increasing.

With that said, coronavirus could drive out the planned launch of the next generation PlayStation 5 and Xbox Series X. The two new game consoles – both built around AMD processors – were expected to launch this fall. However, there are two major concerns about that timing. The first is whether factories in China will be back online in time to get production of the new consoles buzzing.

The second challenge will be whether the coronavirus pandemic starts a major recession. If people have been fired for a long time, will they have the money to pay out the expected $ 500- $ 600 for a new console (plus games and accessories) at Christmas?

AMD will see an increase in revenue when the new consoles are launched and consumers take them, but this may be delayed.

The conclusion of AMD Stock

Advanced Micro Devices has had a consensus among investment analysts for several months. This is still the case, despite recent upgrades such as Northland Capital Markets. But a median price target of $ 50 gives long-term investors a certain rise and bears see it go even higher.

Given the demand for EPYC servers, AMD’s latest offensive against Intel in the laptop market, and an upcoming boost as Xbox Series X and PS5 production rises, Advanced Micro Devices appears to be well positioned for a return to growth.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a leading contributor focusing on consumer technology for Forbes since 2015. At the time of writing, he had no position in any of the above. securities.