AMD's (NASDAQ:AMD) stock recently hit all-time highs after the chipmaker's second-quarter numbers beat Wall Street's expectations. Its revenue rose 26% annually to $1.93 billion, beating estimates by $76 million. Its adjusted earnings rose 125% to $0.18 per share and cleared expectations by a penny.

AMD expects its revenue to grow 42% annually in the third quarter and 32% for the full year. Those rosy forecasts also beat analysts' expectations and indicate its stock still has room to run after rallying nearly 70% this year.

Let's examine the four main catalysts that are generating fresh growth for AMD.

AMD CEO Lisa Su.

Image source: AMD.

1. Intel's 7nm delay

Unlike its larger rival Intel (NASDAQ:INTC), which manufactures its chips at its own foundry, AMD outsources the production of its chips to Taiwan Semiconductor Manufacturing (NYSE:TSM), the world's most advanced contract chipmaker.

In recent years, Intel fell behind Taiwan Semiconductor in the "process race" to create smaller and denser chips. Intel fumbled its transition from 14nm to 10nm chips, resulting in a shortage of chips which allowed AMD to gain ground, then recently dropped the ball again by delaying its 7nm chips.

AMD's newest Ryzen and Epyc CPUs are already built on Taiwan Semiconductor's 7nm process, and will likely gain ground against Intel in the PC and data center markets, respectively, as the market leader tries to catch up.

2. Its growing share of the PC market

Intel's share of the desktop PC market plunged from 76.6% to 51.3% between the third quarters of 2016 and 2020, according to PassMark Software, as AMD's share more than doubled from 23.4% to 48.7%. During the same period, Intel's share of the laptop market dipped from 91.2% to 81.2%, as AMD's share grew from 8.8% to 18.8%.

As Intel struggled with its chip supply and process challenges, AMD launched a new generation of Ryzen CPUs -- which rectified the poor single-thread performance of its previous Bulldozer CPUs. It executed that course correction while maintaining comparable performance at lower prices than Intel, and PC makers flocked back to AMD.

During the second quarter, AMD's revenue and average selling prices for its desktop and laptop CPUs both rose year over year. As a result, AMD's computing and graphics revenue soared 45% annually to $1.37 billion. By comparison, Intel's "PC-centric" revenue grew just 7% annually in its second quarter.

3. Growth in PC and console gaming

In the gaming market, AMD's newest Radeon GPUs, which are also built on Taiwan Semiconductor's 7nm process, gained ground against NVIDIA's (NASDAQ:NVDA) GeForce GPUs. According to JPR, AMD's share of the discrete GPU market rose from 22.7% to 30.9% between the first quarters of 2019 and 2020, while NVIDIA's share slid from 77.3% to 69.2%.

A gamer plays a game on a laptop.

Image source: Getty Images.

AMD gained ground against NVIDIA by staying ahead of its rival in the process race. AMD and NVIDIA both outsource the production of their chips to Taiwan Semiconductor, but NVIDIA's latest gaming GPUs are still 12nm chips. As a result, AMD's chips can offer comparable performance to NVIDIA's chips at lower prices.

AMD also dominates the console gaming market by supplying custom APUs (which combine a CPU and GPU) for Sony's (NYSE:SONY) PS4 and Microsoft's (NASDAQ:MSFT) Xbox One. Slower sales of both consoles reduced AMD's EESC (enterprise, embedded, and semi-custom) revenues 4% annually to $565 million during the quarter, but the upcoming launches of the PS5 and Xbox Series X -- which are both powered by AMD's chips -- will likely reverse that decline next year.

4. Its potential growth in the data center market

Intel still controlled 98.5% of the data center market in the third quarter of 2020, according to PassMark, leaving AMD with a 1.5% share.

However, AMD noted that higher sales of its Epyc server CPUs partly offset the console gaming declines in its EESC business during the quarter. Moreover, Bank of America analyst Vivek Arya recently predicted that AMD could claim over 25% of the server market by 2023 as it carries over its gains in PCs to the data center market.

But investors shouldn't ignore the challenges

AMD looks like it's firing on all cylinders, but investors shouldn't ignore the potential challenges.

Intel is struggling right now, but it could catch up by outsourcing its production of newer chips to Taiwan Semiconductor and aggressively upgrading its plants. NVIDIA remains a generation behind AMD right now, but it's expected to launch next-gen gaming GPUs (either 7nm or 8nm chips) in the near future. AMD's stock also isn't cheap at over 70 times forward earnings.

I believe AMD can remain in the lead as long as CEO Lisa Su, who led the chipmaker's turnaround, stays in charge. However, a lot of that growth is already baked into the stock -- and AMD could struggle to top Wall Street's ever-rising expectations. Therefore, investors can nibble on the stock at these levels, but they shouldn't expect it to easily repeat its massive gains from earlier this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.