In the world of computer chips, there's Intel (NASDAQ:INTC), then AMD (NYSE:AMD), and then ... nothing. The duopoly remains locked in mortal combat over market share and technology leadership, as plucky underdog AMD strives to establish itself as an obvious alternative to its larger rival. Let's have a look at AMD's progress in 2006.

In the first quarter of this year, AMD did flat-out great. Revenues rose 71% year over year, and operating income quadrupled, as gross margins hit a record high of 58.5%. But that was a short-lived margin peak. Still, the company came out of the quarter looking really good.

The second quarter brought AMD lower margins as the price war with Intel heated up. But operating income increased 23% over the 2005 period, and Dell (NASDAQ:DELL) finally decided to serve up systems built around AMD processors, after untold years on the sidelines.

In the third quarter, AMD bought graphics chip designer ATI to much fanfare, and to the consternation of Intel and Nvidia (NASDAQ:NVDA) fans. AMD also outperformed its larger rival on the financial field, but it was Intel's stock that gained value on the news. The market assigned undue importance to the performance of Intel's new chips, making for an awfully nice entry point into the stock. It's so easy to forget the future when the competition looks so strong today.

The fourth quarter so far has brought nothing but glad tidings, with a positive update on the ATI merger progress, as well as a good-looking product announcement or two.

Overall, AMD has had a fine year. That price war has put a serious squeeze on margins, but not bad enough to run the bottom line into red-ink territory, and explosive revenues have largely balanced out the margin issue. The ATI deal promises to make AMD more competitive than ever over the next couple of years, and there is a very impressive technology road map in place for the journey ahead. The stock started the year flying high, but came down to Earth when margins started to erode. It is now trading at a very reasonable P/E of 14 times estimated forward earnings, and I've taken advantage of the buying opportunity myself.

But what does the future hold? Well, our Motley Fool CAPS community members have something to say about that. Just take a look at how the overall sentiment stacks up:

AMD

CAPS Rating
 ** (out of five stars)

Total Bulls

679

Total Bears

106

Bull Ratio

86.5%

Bear Ratio

13.5%


Two stars isn't exactly a ringing endorsement, and a 13% bear ratio is actually rather high. Here's why all-star CAPS player DutchMark joined the bears:

"It seems AMD managed to convince investors of its hopes to win back market-share in 2007. The 13% jump that followed seems rather ludicrous as technologically they're still way behind Intel. So I really have no idea what they can base those hopes on. If anything, the last months have proven (again) that all Intel needs to do is shift its weight a little bit and AMD goes tumbling."

cisspshp respectfully disagrees:

"Perhaps the purchase of ATI wasn't about gaming graphics. Perhaps it was really about multi-core supercomputers. AMD stock price appears to be near a bottom. I'm in."

And so it goes. The market will tell us who's right and who's wrong, all in due time. This Fool remains a bull on AMD, because there is a great deal of innovation and fight left in the little chip maker that could, and the market will eventually catch on. Really, it will.

If you're excited by what's been happening at AMD, you can see what other companies tickle the fancy of high-tech geeks like me. Try a free 30-day trial of Rule Breakers, our premium iconoclast service, or Hidden Gems, with Fools who go where the market at large doesn't.

Fool contributor Anders Bylund is an AMD shareholder, but holds no other position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick, and Nvidia is a Stock Advisor recommendation. Dell feels the love from both of those two services. You can check outAnders' holdingsif you like, and Foolishdisclosureis always top-of-the-line.