Is Advanced Micro Devices Stock Going to $200? 1 Wall Street Firm Thinks So.

Soaring demand for Advanced Micro Devices‘ (AMD 0.63%) data center chips sent the stock to a high of $227 earlier this year. It is currently off those highs — around $157 — and offering an attractive entry point, according to Wedbush.

The firm maintained an outperform (buy) rating on the stock this week and also kept its price target at $200, representing upside of 27% over the current share price.

Wedbush is optimistic about AMD’s recent acquisition of ZT Ssystems, a leading provider of artificial intelligence (AI) infrastructure to data center operators. Here’s what this means for AMD’s growth, and why it could help the stock return to its previous high.

Why buy AMD stock

On Monday, AMD announced the acquisition of ZT Systems in a cash and stock deal. “ZT adds world-class systems design and rack-scale solutions expertise that will significantly strengthen our data center AI systems and customer enablement capabilities,” AMD CEO Lisa Su said in a statement.

Some investors see the acquisition as a desperate attempt to catch up to Nvidia, which is dominating the market for high-powered graphics processing units (GPUs) and AI systems for data centers.

Wedbush disagrees. The firm likes that AMD was able to acquire ZT at a discounted valuation. AMD will look to sell off ZT’s manufacturing assets and retain the more valuable design and services business.

Most importantly, Wedbush sees the $4.9 billion deal as confirmation of AMD’s growth opportunity in the growing $236 billion data center market. AMD is growing right along with it. Its data center revenue skyrocketed 115% year over year last quarter, and the acquisition of ZT Systems should only strengthen its offering to the leading data center players in the world.

AMD is still seeing weak demand in other areas of its business, such as gaming GPUs, but once it’s firing on all cylinders again, the stock may already be well past the analyst’s price target.

John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.