Shares of AMD have gained 582% in the last one year. With AMD stock trading near its 10 year high, is it a buy ahead of the Ryzen Launch?

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Sunnyvale, California-based Advanced Micro Devices, Inc. (NASDAQ:AMD) has found a constant mention in the recent news. The hype has been constantly rising heading into the upcoming launch of the company's Ryzen CPUs. With less than a week to go before the latest CPU range starts shipping to customers, the big question is whether or not AMD stock is a good buy near its 10-year highs? The question assumes even greater relevance given the 580%+ rise in AMD stock price in the last 12 months. So, Is AMD stock still a good buy? Well, we think yes, and, here are 3 reasons to buy the stock even at the current levels.

AMD is set to gain CPU market share.

One of the biggest reasons to buy AMD stock ahead of the Ryzen launch is the potential for market share gains across the PC market as well as the server market. As per CPU Benchmark, AMD's share of the current PC CPU market is at 17.4% in Q1 2017 (as of Feb 27), which is down from a peak of 48.4% market share in Q1 2006. As pointed out by an author, Chris Lau, on Seeking Alpha, we could see AMD take market share from Intel by the end of this year. Given the historical speed at which market share changes in the CPU market, AMD's share of the CPU market climbing up to 20% in 2017 isn't a far fetched idea.

Ryzen Could Help AMD Break Intel's Near Monopoly In Servers.

The biggest gains from AMD's latest CPU product range could, in fact, come from market share gains in the server market. Why? Well, Intel has successfully kept AMD out of this market with a near 100% market share. As reported by Tiernan Ray from Barrons, the leading data center players will not be too happy in dealing with a monopolistic player to power their needs. Citing a recent bullish note from Rosenblatt Securities‘s Hans Mosesmann, the post states that "AMD’s new Zen family of processors (architected by highly acclaimed CPU ar- chitect Jim Keller), is set to gain share in mid-to-high end server sockets as datacenter players are keen on an alternative source that likely will not sell them “up” every year, and with features that Intel may not offer such as 8 memory channels (DRAM)."

Given the rapid growth the data center market is poised to experience over the coming years, AMD seems to have been perfect with the timing of its Naples server CPU. As per a recent JLL report, the data center market is set to double in size over the next 5 years. The upcoming launch in Q2 2017 will position the company to gain market share in this rapidly growing market. The impact on overall business will be significant, given that AMD has been absent from this market so far. AMD's presence in the OpenCAPI project, a consortium of tech companies including Alphabet (NASDAQ:GOOGL), International Business Machines (NYSE:IBM), NVIDIA (NASDAQ:NVDA) and others to enhance data center computing should help the company's aspirations in the server market. According to VentureBeat, "companies will be able to build products that meet the specs by joining the consortium or by getting a license from the group."

The gains will be accompanied by higher margins

The Ryzen launch will also positively impact AMD's profit margins. AMD unveiled the pricing of its Ryzen 7 series CPUs last week. The pricing for the 3 models was more or less in line with expectations, which were based on previous leaks. In a recent Seeking Alpha post, the author points out that the leaked prices for the Ryzen 3 (lowest range of Ryzen CPUs) are probably too high to take away any meaningful share at the lower end of the market. While the final pricing could tell a different tale (in case it differs meaningfully from expectations), what if AMD isn't even targeting the lower end? Why? Well, the budget PC segment is stalling, even as high end PCs continue to see growth. Quoting from a recent PCWorld post: "As the overall PC market shrinks, mobile devices have replaced low-cost PCs for many users. Those who are looking for a new PC more often than not are interested in a high-quality machine; buyers of low-cost PCs are currently in the minority."

Well, given this context, AMD is probably targeting the mid-to-higher ends of the PC market and not so much so the lower end, which is shrinking with every passing year. A significant market share in the mid-to-high end markets will help to drive up AMD's ASP (Average Selling Prices), which should help the company to drive more dollars to the bottom line. AMD's erratic bottom line could surely do with more higher margin products in the sales mix.

Conclusion

All in all, we think the AMD's management is spot on with their Ryzen pricing strategy, which should help the company sell more products at higher margins. Also, the upcoming Naples launch in Q2 could help the company cut out a share from Intel's current monopoly, potentially opening up a new revenue stream. Hence, long-term investors should continue to buy AMD stock, and use any dip in price to buy even more.