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AMD Serves Another Loss to Intel

Chalk up another victory for Advanced Micro Devices (NYSE: AMD  ) . Chip market tracker Mercury Research released market share data for the second quarter on Friday, and once again AMD gained ground in the server market.

Mercury reports that AMD grew its share to 25.9% during Q2, up 17% from 22.1% in Q1 and 133% year over year. Thank Opteron for the gains. AMD's highly regarded server chip has earned fans among server makers, includingDell (Nasdaq: DELL  ) and IBM (NYSE: IBM  ) , which just today announced plans to roll out a new line of servers based on Opteron.

Surely the gains are tempting some; AMD's stock is up 8% from Thursday's close as of this writing. And the enthusiasm is understandable. Opteron's gains have lifted AMD into the rarefied air of outsized market share. (Say that three times fast.)

Still, I can't help but wonder if there is little room for the stock to advance from here, especially now that Intel (Nasdaq: INTC  ) has launched a meaningful offensive with the Woodcrest and Conroe chips. Woodcrest, in particular, says Mercury Research analyst Dean McCarron, is "a very substantial competitor to Opteron."

Maybe. But Woodcrest can't and won't halt the march of Opteron over the short term. That's the good news. The bad news is that it doesn't need to. Woodcrest's primary role is to prove to server makers that Intel is once again serious about innovation in that sector of the market. That, in turn, will give the chip maker time to buttress newer models built on the Core microarchitecture, while it continues developing the Nehalem microarchitecture for 2008.

In other words, what really matters for buy-to-hold investors is what happens two years from now, when IT managers have a slate of more competitive server chip choices.

I've no crystal ball; I can't and won't predict who will sell what to whom. All I know is that analysts are saying AMD will grow earnings by 15% annually over the next five years, which is a remarkably aggressive estimate when the company has never been able to perform such a feat. There's always a first time, of course. And AMD does appear to be a much stronger firm today than it was a few years ago. I'm just not sure it's different enough to deliver the outsized gains today's investors seem to be hoping for.

Allow us to chip in with related Foolishness:

Intel and Dell are Motley Fool Inside Value selections. Ask us for anall-access passto the service and you'll be privy to chief advisor Philip Durell's best picks, which collectively are beating the market as of this writing. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a try; it's free for 30 days.

Dell is also a Motley Fool Stock Advisor pick.

Fool contributor Tim Beyers didn't own shares of any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.

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