Advanced Micro Devices (ticker: AMD), the No. 2 PC-microprocessor maker, has a fairly impressive headquarters building in Sunnyvale, Calif., near the offices of its much larger rival Intel (INTC) in neighboring Santa Clara. Both have stood the test of time as a slew of start-ups have moved in and out of the anonymous office parks dotting the Valley. Every once in a while, when the old titans need new blood, they troll the newbies in those rented cubicles. In February 2012, for example, AMD bought SeaMicro, a 2007 start-up just down the block, if you will.

The deal was important. SeaMicro offers AMD a chance to take share in the mainstream server-computer market, in which Intel sells about 96% of the chips, according to IDC. If the effort succeeds, it could lift AMD's stock substantially. At a recent price of $3.94, the shares are up 64% this year, but still down 32% in the past 12 months, as last spring's fleeting hopes of a sustained turnaround faded.

This time could be different. SeaMicro's technology looks good; its management team, astute; and the market opportunities, promising. One newly converted bull, Dan Niles, who bought AMD this year after being negative on its prospects last year, thinks the shares could go to over $8. Niles, who works at AlphaOne Capital Partners, sees this happening if AMD's revenue grows to $7 billion by 2015, and if its stock multiple of enterprise value to trailing 12-month sales rises from 0.7 times now to 1.3 times, which would bring it closer to Intel's 2.2. He considers this very possible. .

The 30-year circus of AMD versus Intel is at a particularly interesting juncture. The SeaMicro deal places AMD's server-microprocessor business under the purview of the start-up's founder, Andrew Feldman, a Stanford University brat and an economist by training, who built SeaMicro by allying with Intel and teaching the semiconductor giant how to better use its own chips.

This comes at a time when the plain old personal-computer market is terrible, a concern for both companies, albeit more so for Intel, which sells the vast majority of PC microprocessors.

Markets that neither chip maker dominates, such as those for tablets and "microservers," a new class of server computers, offer lots of opportunity for both companies. The tablet market could expand by more than 50% this year, while microservers are a brand-new market.

Along with Feldman, much of the AMD management team is relatively new, including CEO Rory Read and Lisa Su, head of its global business units, each of whom came aboard in the past two years.

At AMD's offices last week, Feldman wildly scribbled diagrams about the server market on a whiteboard, and made it clear that he relishes the irony of battling his former partner.

Feldman built SeaMicro by convincing Intel of the promise of microservers. Intel wanted to sell traditional Xeon chips—among its most expensive—to SeaMicro to use in microservers. But Feldman insisted on much cheaper Atom chips that Intel sells for tablets and smartphones. These are vastly weaker than Xeon processors, but can be grouped to accomplish specific tasks, such as serving up Web pages or databases. "What I was able to show Intel is that we would sell four times as many Atom chips as Xeon chips, and that Intel would make 1.7 times the revenue as they would have with Xeon," says Feldman.

By: Docmemory
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