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What: Shares of Advanced Micro Devices (NASDAQ:AMD) have plunged today by as much as 17% after the company reported earnings last night.

So what: Revenue in the second quarter totaled $1.16 billion, which translated into an adjusted loss of $0.09 per share. Both figures were ahead of Street forecasts, which called for $1.11 billion in sales, and a loss of $0.13 per share. The real cause for concern was within guidance.

Now what: The third quarter should see revenue increase sequentially by approximately 22%, which is a healthy figure. Despite the expected top line gains, investors are concerned about profitability. AMD said gross margin next quarter should be around 36%, a significant sequential drop from the 40% gross margin just posted. Shares have already soared in recent months on optimism around next-generation game consoles, but the custom chip business is proving to be less profitable than investors were hoping for.

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Fool contributor Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.