Advanced Micro Devices, Inc. (NASDAQ:AMD) announced it has signed a 5-year amendment to its Wafer Supply Agreement (WSA) with GlobalFoundries. On the heels of the news, Canaccord analyst Matt Ramsay reiterates a Buy rating on shares of AMD with a price target of $8.50, which represents a nearly 16% increase from where the stock is currently trading.

However, though Ramsay maintains his 2016 estimate of ($0.18), he lowers his 2017 EPS estimate from $0.11 to $0.10, considering the addition of 14 million shares to the diluted share count.

For Ramsay, this amendment will provide the chip maker flexibility to manufacture products at other foundries, noting, “We believe AMD will add Samsung as a 14nm partner given their IP sharing agreement with GlobalFoundries in addition to the existing TSMC relationship for GPUs.”

Second, the analyst anticipates this will set long-term pricing structure of GlobalFoundries’ 14nm and 7nm wafers.

Third, Ramsay notes the agreement “significantly de-risks AMD’s future product roadmap by adding supply diversification given the mixed track record of GlobalFoundries in hitting technology milestones.”

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“While we anticipate AMD shares will trade down near-term given the $100M in cash and 75M share dilutive warrants issued GlobalFoundries ownership to secure this agreement (AMD shares were down ~5% in AH trading), we believe the long-term operational stability and increased customer confidence AMD will attain by adding additional sources of silicon supply will far out-weigh the costs of the agreement long-term,” he concludes.

Therefore, though Ramsay is well aware of the risks that remain for the company, he remains positive on AMD’s prospects and impressed with its new direction in leadership, expecting a quick road of recovery to steady profitability.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Matt Ramsay is ranked #201 out of 4,129 analysts. Ramsay has a 62% success rate and yields 9.9% in his annual returns. When recommending AMD, Ramsay earns 26.5% in average profits on the stock.

TipRanks analytics exhibit AMD as a Hold. Based on 15 analysts polled in the last 3 months, 4 rate a Buy on AMD, 5 maintain a Hold, while 6 issue a Sell. The consensus price target stands at $5.59, marking a nearly 24% downside from where the shares last closed.

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