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Advanced Micro Devices, Inc. (AMD) seems to be a very out of favor tech stock, but investor pessimism often goes far beyond reasonable levels and in some cases that can create cheap buying opportunities. While AMD faces serious challenges and incredibly capable competitors like Intel (INTC), it has historically managed to remain a major player in this industry. With the shares trading just over $2, it might be time to take a fresh look at some of the positives and upside potential that could come with a turnaround.

An economic recovery and demand from Asia and emerging markets could boost the outlook for semiconductor stocks. AMD has also implemented some restructuring plans that are designed to reduce overhead. If the company is successful in lowering expenses, it could return back to profitability sooner than expected. Analysts are expecting AMD to post a small loss in 2013, however, the estimates are near break-even for 2014. While AMD has not always had consistent financial results, it did earn 67 cents per share in 2011 and 64 cents in 2010. That shows the kind of earnings power this stock has, when conditions are right.

As Ashraf Eassa points out in a recent article, AMD is getting more aggressive in the graphics chip market and it has made some moves that might allow it to further compete with the likes of Nvidia (NVDA). Graphic chips can be a higher margin product for companies and it is an important market, even if it is considered a niche.

While many investors seem to have lost interest in AMD, some analyst are very bullish. In March 2013, analysts at Wells Fargo announced an outperform rating and set a price target range of $5.00 to $7.00. The bullish view seemed to be based on AMD's latest "Richland" processors and restructuring benefits. A recent article states:

Commenting on developments, analyst David Wong of Wells Fargo said, "We think it is notable that Richland represents a third generation of chips on 32nm technology, with AMD not planning to move to 28nm till later this year. . . . AMD has been bringing out some interesting new microprocessor products which leverage its graphics expertise. In our view, the company has done a good job in restructuring its business to reduce risk from high capital needs."

According to Shortsqueeze.com, there are roughly 95.5 million AMD shares short. With average trading volume of about 11.3 million shares, the short position is equivalent to more than 7 days of trading volume. If any good or better than expected news is released, this stock could see an accelerated move to the upside since so many shorts are trying to play the downside. However, since AMD has posted losses recently, this is a more speculative pick.