What happened

Shares of Advanced of Micro Devices (AMD -0.18%) gained 17.3% last month, according to data provided by S&P Global Market Intelligence. The stock took off in July, and investors continued to bid the share price up last month. Fueling the enthusiasm around the stock is AMD's recent gains in market share against rival Intel (INTC 2.96%) in the server market. 

The optimism was validated when AMD reported another strong quarter in late July. In August, one analyst issued a bullish call about AMD's prospects to continue taking share from Intel over the next few years, which buoyed the stock price.

A computer processor on a blue circuit board with gold lines shooting out in different directions.

Image source: Getty Images.

So what

AMD's revenue jumped 26% year over year last quarter, driven by record notebook and server-processor sales. Gross margin improved three percentage points, which helped boost earnings to $0.18 per share from $0.08 in the year-ago quarter. 

"Importantly, we met our double-digit server processor market share goal as data center products accounted for more than 20% of our second-quarter revenue," CEO Lisa Su said during the second-quarter conference call.

AMD's growth comes at the expense of Intel, which is stumbling badly as it tries to transition from 10-nanometer to seven-nanometer chips. Intel's misstep could allow AMD to take anywhere from 30% to 50% market share in the server market within the next five years, according to a Jefferies analyst. 

Now what

The chip maker expects momentum to continue in the short term. Management is calling for third-quarter revenue to be up 42% year over year and 32% sequentially over the second quarter. AMD expects full-year revenue to be up approximately 32% over 2019, driven by strength in PC, gaming, and data center products. 

One near-term catalyst to watch is the new game consoles launching this holiday. AMD is supplying custom graphics processing units for Sony's PlayStation 5 and Microsoft's Xbox Series X. High demand for those new consoles would add more enthusiasm for AMD's growth prospects.