Advanced Micro Devices Stock Hitting $200? 1 Wall Street Firm Thinks So.

Increasing demand for Advanced microdevices‘ (AMD 1.40%) Data center chips sent the stock to a high of $227 earlier this year. It’s currently off those highs — around $157 — and offers an attractive entry point, according to Wedbush.

The firm maintained an Outperform (Buy) rating on the stock this week and also maintained its price target at $200, representing a 27% upside from the stock’s current price.

Wedbush is bullish on AMD’s recent acquisition of ZT Ssystems, a leading provider of artificial intelligence (AI) infrastructure for 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 system design expertise and rack-scale solutions 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 Nvidiawhich dominates the market for high-powered graphics processing units (GPUs) and data center AI systems.

Wedbush disagrees. The firm likes that AMD was able to acquire ZT at a reduced valuation. AMD will look to sell 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 grows with it. Its data center revenue has skyrocketed 115% over last year, and the acquisition of ZT Systems should strengthen its offering for the world’s major data center players.

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 could already be well above the analyst’s price target.