Advanced Micro Devices' (AMD 0.61%) stock is down more than 10% since the company shocked investors last October with a muted third-quarter earnings report and terrible guidance. The chipmaker has fallen prey to weak graphics card demand now that the cryptocurrency mining craze has fizzled and believes that it will take a couple of quarters for things to return to normal.

That's why AMD investors shouldn't be expecting any major gains when it releases its fourth-quarter results on Jan. 29, though the possibility of an upbeat outlook cannot be ruled out thanks to recent product-development moves. Let's see what could be in store for this beaten-down chipmaker next week.

Worried woman looking at a laptop.

Image Source: Getty Images.

Plugging the graphics card gap

AMD's fourth quarter will mark a departure from its days of rapid growth. Analysts expect earnings per share of $0.08, flat with the prior-year period, on a 2.2% decline in sales to $1.45 billion. The estimates are in line with AMD's own guidance, and there's unlikely to be any surprise on this front thanks to the lack of any catalysts of late.

For instance, sales of discrete graphics cards were down 19% sequentially during the third quarter of 2018 because of an overload of inventory. AMD was badly hit by this downturn; its GPU (graphics processing unit) market share went from 36.1% during the second quarter of 2018 to 25.7% in the third quarter.

Now that NVIDIA has a new generation of GPUs on offer that are packed with advanced technologies such as ray tracing, AMD's graphics card sales could be taking another hit.

However, AMD should be able to close the gap with NVIDIA to some extent when it launches the 7-nanometer (nm) Radeon VII high-end graphics card next month. The company claims that this new high-end GPU is 29% more powerful than the previous flagship card and doesn't consume any additional power because of its advanced manufacturing process.

Benchmark tests suggest that the card can take on NVIDIA's flagship RTX 2080, which could help AMD score some points with buyers, since the Radeon VII is $100 cheaper than the competing product. As a result, AMD could issue solid forward-looking guidance if the new GPU gives it that much-needed sales lift.

Additionally, AMD is expected to refresh its entire GPU lineup this year based on the 7nm manufacturing process. Such a move will boost confidence because the company will be ready with a new series of graphics cards in time to replenish the channel inventory, and AMD investors can expect more clarity on this front along with its results.

Processor sales should continue rising

AMD has been eating into rival Intel's PC and server processor market share thanks to its Ryzen and EPYC chips. For instance, the company had claimed that its third-quarter notebook processor shipments  doubled on a sequential basis for the second quarter in a row because 60 Ryzen-equipped notebooks were launched in 2018. It wouldn't be surprising to see the momentum continuing in 2019, since the company promises a bigger range of Ryzen-equipped notebooks this year.

Similarly, AMD's EPYC server processors have been in strong demand from Tier 1 cloud computing providers and server manufacturers, which is why it was on track to exit 2018 "with mid-single-digit server unit market share," according to the latest estimate. Looking ahead, demand for AMD's server processors will keep getting better now that the company has started sampling its next-generation Rome server chips.

The company is witnessing strong engagement levels with customers for this new server chip already, giving AMD the confidence that it can hit double-digit server market share with Rome.

A potential turnaround?

In all, there's a good chance that AMD will paint a bright long-term picture when its results come out. That should set the stage for a potential turnaround.

Check out the latest Advanced Micro Devices earnings call transcript.