Advanced Micro Devices (NASDAQ:AMD) came into 2017 with momentum on its side, but it lost its way after releasing tepid second-quarter guidance in May. The good news is that AMD has made a terrific comeback since that slip-up, thanks to a blowout performance during the second quarter

Analysts are divided over AMD's upside potential, believing that the stock is fairly valued after rising rapidly over the past year. Therefore, any slip-up from AMD's side when it releases its third-quarter report after the market closes on Oct. 24, could result in turbulence in the stock price once again.

Hence, it is important to check whether AMD's upcoming results can pass muster. But even if they don't, should savvy investors take advantage of any ensuing dip to buy more shares? Let's find out.

Ryzen logo

Image source: AMD.

AMD can beat expectations

Wall Street expects AMD's revenue to increase around 15% year over year to $1.51 billion, which will push its earnings per share to $0.08 from $0.03 in the prior-year period. The chipmaker shouldn't have any difficulty in meeting these targets and it won't be a surprise if the results are even better.

AMD's results could benefit from cryptocurrency-led GPU (graphics processing unit) demand once again. According to Mizuho analyst Vijay Rakesh, the quarter's GPU shipments were 30% to 50% higher than expected thanks to cryptocurrency mining, paving the way for a strong top-line performance. More importantly, the robust GPU demand has boosted chip pricing by 25% in the past six months, which should augment AMD's margin profile and enhance earnings.

Additionally, AMD has gained more ground over NVIDIA (NASDAQ:NVDA) in the GPU space, adding 1.9 percentage points of market share during the second quarter of the year. Therefore, there is a strong possibility that AMD will come out with flying colors when it reports its third-quarter earnings, though it will also have to issue solid guidance to keep the skeptics at bay.

What about the outlook?

AMD looks set for a strong finish to the year in light of its recent contract wins. For instance, the much-hyped EPYC data center processor, launched at the end of June, has started gaining traction at cloud service providers. In fact, the company has signed on 10 major server manufacturers that will be using this chip in their data centers.

More importantly, AMD has been scoring wins with NVIDIA's customers, breaking the latter's viselike grip over Amazon's AppStream 2.0 application streaming service. AMD is now providing its server GPU for the Graphics Design instance of AppStream 2.0, while the other two instances are powered by NVIDIA chips.

Even Alibaba has decided to join forces with AMD. The Chinese e-commerce giant will now be using AMD's GPUs to power its cloud service, after originally selecting NVIDIA as a partner in January 2016. AMD's recent inroads into NVIDIA's clientele will definitely give it a shot in the arm going into the end of the year. Investors shouldn't forget that its data center business can get bigger in the long run.

Last year, AMD formed a partnership to license its server-chip designs to a Chinese partner, which gave an immediate boost to its revenue. The Chinese data center market is expected to grow at an annual pace of 13% through 2020, which will drive the need for more server chips. AMD's agreement with its Chinese partner will help it tap the secular growth of this market and boost its revenue in the long run.

Recent benchmarks indicate that AMD's top-of-the-line Vega GPU can outperform NVIDIA's current flagship GPU quite easily. Initially, there were concerns that AMD's new GPU lineup couldn't match up to NVIDIA's chips, but recent real-world tests seem to indicate otherwise.

Tests conducted by show that the RX Vega 64 outpaced the NVIDIA GTX 1080 Ti in full HD resolution while running the Forza Motorsport 7 game. This is a ringing endorsement for AMD's GPU lineup going into the busy holiday season when GPU sales are traditionally strong.

Given all these tailwinds, it is highly likely that AMD will come out on top with its third-quarter earnings report and guidance, which will help maintain the stock's momentum. But even if AMD disappoints for some reason, investors shouldn't panic -- growth in data centers and gaming will eventually lead to long-term growth.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.