AMD Reports Tuesday. Here's the Number That Will Show Whether It's Gaining on Nvidia

Advanced Micro Devices (AMD) is set to release its third-quarter earnings report after the close of trading on Tuesday. The stock has been on a downward trend, shedding nearly 11% on Friday and further on Monday, driven by a lack of company-specific news and broader weakness in semiconductor stocks. AMD's shares have declined about 30% from their peak reached less than a month ago.

The company has not disclosed its exact results but is expected to report revenue of approximately $13 billion, with a possible variation of $300 million. Analysts forecast the actual figure to be $13.09 billion, which represents a 41.5% increase compared to the same quarter last year. However, the most critical figure to watch is AMD's guidance for the fourth quarter, particularly the revenue generated from its new data center GPUs.

AMD began shipping its Helios rack-scale systems, built on its MI450 chips, in September, and the third quarter will not include a complete period of these systems' sales. Nonetheless, management indicated that the ramp-up could accelerate significantly in the fourth quarter. Analysts forecast revenue for the fourth quarter to be around $16.3 billion, with Jefferies analyst Blayne Curtis projecting it could reach closer to $17 billion. Such an outlook would indicate that demand for AMD's AI solutions is growing rapidly.

AMD's AI business faces stiff competition from Nvidia, which generated $89 billion in data center revenue in its latest quarter. While AMD's data center segment, encompassing its EPYC server processors, generated $6.7 billion in revenue, it is still lagging behind Nvidia's AI market share. However, AMD's emerging position as a credible alternative supplier makes it an attractive prospect for AI companies looking to diversify their computing power sources.

AMD's CEO, Lisa Su, has emphasized that each gigawatt of AI capacity translates into double-digit billions in revenue, implying that even a modest share of the market could prove to be a significant victory for the company.

Nonetheless, investors should be mindful of potential risks. AI chips typically yield slightly lower margins than server processors, so a swift ramp-up in GPU sales could negatively impact gross margins. Moreover, Intel's warning about a shrinking PC market could also pose a challenge for AMD's client business, which grew by 23% in the previous quarter.

Overall, the focus should be on the guidance rather than the results. If the fourth-quarter outlook indicates that AMD's Helios ramp-up is proceeding as expected, the recent stock decline may present an attractive opportunity for long-term investors in a promising AI stock.