Source: AMD.

On Thursday, Advanced Micro Devices (NASDAQ:AMD) will release its quarterly report, and shareholders have celebrated the tech company's return to profitability recently. Despite ongoing strong competition from Intel (NASDAQ:INTC), NVIDIA (NASDAQ:NVDA), and other chipmakers, AMD has found a profitable niche in the industry, and the question investors are asking is how far AMD can ride the tide of sales to sustain its newfound profitability into the future.

For decades, AMD has lagged behind Intel in the PC realm, and efforts to compete against NVIDIA and others in areas like graphics processors have produced mixed results. Yet AMD found great success in the gaming-console industry late last year, providing chips for two new consoles that helped produces massive sales gains. Now AMD has to prove it can make the most of its newfound success. Let's take an early look at what's been happening with Advanced Micro Devices over the past quarter and what we're likely to see in its report.

Stats on Advanced Micro Devices

Analyst EPS Estimate


Year-Ago EPS


Revenue Estimate

$1.44 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will AMD earnings keep growing?
Investors have gotten even more excited about AMD earnings recently, boosting second-quarter estimates from initial calls for break-even results and raising full-year projections for this year and next by more than half. The stock has maintained its ascent, rising more than 16% since early April.

AMD's first-quarter report provided blowout results, helping to lift the stock even further in its recent advance. Sales soared 28% from the year-ago quarter, and although AMD posted a net loss under GAAP, adjusted earnings came in unexpectedly positive. Revenue in AMD's Graphics and Visual Solutions business more than doubled thanks to the presence of AMD chips in the newest Xbox and PlayStation consoles released over the holiday season, and AMD hopes to have similar opportunities to provide semi-customized chips for various applications on a regular basis in the future.


Source: AMD,

Moreover, AMD could actually benefit from the unexpected trend of a rise in recent demand for PCs. Intel gave investors good news when it boosted its guidance for the second quarter, pointing to rising PC demand that reversed years of negative trends for the industry. AMD's position in the PC market isn't as strong as Intel's, but AMD nevertheless has plenty of exposure to PCs and stands to benefit if customers replace older machines with PCs using AMD chips. Yet some argue that because most of the replacement demand came from businesses, AMD's traditional consumer focus will leave it benefiting less from the move.

Still, AMD's overall strategy involves moving away from the PC market toward more lucrative niche opportunities. By focusing on areas like networking infrastructure and dense servers, AMD hopes to dominate small but meaningful markets, emphasizing embedded solutions that customers can have semi-customized to their particular needs. Meanwhile, by avoiding high-competition areas like smartphones, AMD won't get distracted by strategies that have lower chances of success.

One threat AMD faces is that competitors will squeeze it out of its niches. Intel has traditionally avoided the lower end of the PC market, but newer chips have the potential to capture valuable market share in emerging markets. News that NVIDIA wouldn't attempt to produce ARM-based server chips could arguably have been good news on the competitive front for AMD, but others fear that all it means is that AMD's foray is ill-advised and will prove to be unprofitable.

In the AMD earnings report, watch to see how the company does beyond its gaming-console business. Without follow-through efforts to keep growing, AMD's recent earnings growth could flame out once console demand returns to more normal levels.

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Dan Caplinger owns shares of Apple. The Motley Fool recommends Intel, Apple, and Nvidia. The Motley Fool owns shares of Intel and Apple. 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.

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