Shares of chipmaker Advanced Micro Devices Inc. (AMD) have rallied on a bullish note from one team of analysts who sees a positive earnings surprise in store for the Santa Clara, California-based company. AMD stock gained nearly 2% on Monday after popping 5% on Friday to reach its highest level in 10 months. At a price of $16.58, the semiconductor stock reflects a 61.3% gain year-to-date (YTD), far outperforming the broader S&P 500's 4.7% increase over the same period. (See also: Who Are Advanced Micro Devices' Main Competitors?)

New Chips to Boost AMD Profit Margins in Q3

On Friday, Stifel analyst Kevin Cassidy, who rates AMD at buy, increased his 12-month price target on the stock to $21 from $17, representing a nearly 27% upside from Monday close. He cited strength in AMD's EPYC server CPU business, which he wrote is "winning server designs." He expects the model to gain traction ahead of consensus expectations for 5% unit market share exiting the the fourth quarter of 2018.

Meanwhile, the chipmaker's broader PC CPU offering will allow AMD to outperform the market, stated Cassidy. On Thursday, IDC offered preliminary results showing that shipments of traditional desktop, notebook and workstation PCs rose 2.7% in Q2 over the same period last year, marking the strongest growth rate in the industry in over six years, as reported by CNBC. 

As a result of new chips and positive sales trends in the PC market, Stifel foresees AMD's Q3 gross profit margin gaining from 37% in Q2 to 37.7% in Q3.

"We expect AMD to benefit from the stronger than expected results, especially given the trends for enterprise, gaming, and high-end notebooks, all markets in which AMD has improved its competitive position through its Ryzen processors," wrote Cassidy. 

The analyst added that AMD should be able to steal PC and server CPU market share from chip leader Intel Corp. (INTC) through 2019, securing higher sales growth than its larger competitor. (See also: AMD to Gain on Intel Delays: Susquehanna.)

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