Big bets on gaming and server chips are starting to pay off.
After reporting impressive second quarter results on Thursday night, shares of computer chip maker AMD hit almost $6 a pop on Friday—impressive for a stock that was trading at $1.83 in February.
The huge gain comes as CEO Lisa Su, an electrical engineer and chip designer who took the top job almost two years ago, continues to execute on her comeback plan for a company that had been all but obliterated by larger competitors Intel and Nvidia. Key gains in graphics and video gaming console chips have boosted results as well as a savvy deal to license server chip designs in China.
The company’s “big bets” on high-end chips is starting to pay off, Su tells Fortune. She’s expecting even bigger gains when the company’s newest line of high-end computer chips, dubbed “Zen,” goes on sale next year. “It’s a nice way for us to really increase our reach,” says the CEO, who is more fond of understatement than bold pronouncements.
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Where analysts once expected shrinking revenue and continued red ink for AMD this year, the company increased revenue 9% in the second quarter and showed a net profit—although that was due to a one-time gain on a joint venture. On an adjusted basis, AMD lost $40 million in the quarter down from an adjusted loss of $131 million a year ago.
Su and her team have promised revenue for the year will increase modestly and the company will be profitable excluding some items for the second half of 2016 (but not on the basis of Generally Accepted Accounting Principles, or GAAP).
Softbank’s recent $32 billion acquisition of chip designer ARM Holdings, which AMD pays for licenses for its Seattle line of server chips, could improve Su’s company’s competitiveness, she says. Softbank has said it will pour resources into ARM armh and double its employee base in England. “It’s a good position for us,” Su says, again in her typical understated manner. “A very interesting development.”
AMD amd is also benefitting from the somewhat unexpected decisions by Microsoft and Sony sne to create updated versions of their popular Xbox and Playstation gaming consoles. Microsoft msft has already announced a thinner, faster Xbox unit update, the Xbox S, along with a next-generation console, dubbed “Project Scorpio,” aimed at the 2017 holiday season. Sony is rumored to be announcing later this year a more powerful version of its Playstation 4 to better support virtual reality gear.
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AMD is the sole supplier of the customized chips that run the current Microsoft and Sony gaming boxes and, for the future boxes coming up, “the outlook is strong,” Su says without giving much away.
Still, excluding the one-time gain on a joint venture, AMD lost money on an operating basis and had negative free cash flow in the second quarter. So it is “too soon” to call the first half results a successful comeback, says longtime industry analyst Patrick Moorhead, president of Moor Insights & Strategy. “They could very well be on the cusp of one and no one can deny they have momentum,” Moorhead says.