What happened

Shares of Advanced Micro Devices (AMD 5.25%) fell 5.2% in October, despite the overall S&P 500 increasing 8%, according to data from S&P Global Market Intelligence. AMD faced a slew of headwinds during the quarter, including a cratering PC market and the unveiling of new restrictions on advanced semiconductor sales to China. The stock took a big downturn when it pre-announced third-quarter revenue and earnings that missed the mark by a wide margin.

So what

On Oct. 6, AMD management pre-announced its third-quarter results as revenue and earnings wound up coming in far below their projections on the second-quarter conference call. Typically, when there is a wide gap between prior guidance and what actually happens, a company will pre-announce.

In the case of AMD, it pre-announced third-quarter revenue of $5.6 billion versus prior guidance of $6.7 billion, needless to say, a pretty wide chasm. Strikingly, the shortfall occurred really in one segment, the PC market, which came to an absolute standstill during the second half of the summer.

AMD ultimately reported a dismal 40% decline in its client segment (PCs), which accounted for pretty much the entire shortfall. That massive decline was actually enough to send that segment to a slight operating loss and for the client segment to fall below both the enterprise and gaming segments.

AMD was certainly not alone; just about every company involved in the PC market has taken a massive hit. According to IT research firm Gartner, PC shipments were down a stunning 19.5% year over year in the third quarter -- the steepest decline since Gartner began tracking results in the mid-1990s!

On the upside, the enterprise segment reported strong 45% growth and came in at $1.6 billion, gaming revenue was up 16% to $1.6 billion, and embedded chip revenue from the Xilinx acquisition came in at $1.3 billion, which was in line with original guidance.

So it wasn't a total disaster for AMD; however, given that client revenue was the largest segment prior to last quarter, its massive decline greatly affected AMD's overall revenue and profitability.

Now what

There's nothing particularly wrong with AMD's execution or its design chops -- the October weakness was really about the macroeconomic picture and, specifically, the PC market. Therefore, the broader economy will likely affect its fate over the near term.

The factor is the potential worsening of the economic slowdown, affecting even the strong data center segment. However, commentaries from large tech companies still indicate they will continue to spend on data centers and artificial intelligence (AI) in the upcoming year. The investors of the big FAANG names didn't really appreciate that on their earnings calls, but that is good news for AMD's data center segment. Of note, AMD will unveil its newest EPYC data center chips on Thursday, November 10.

Another factor is China. While Lisa Su said new restrictions on sales of chips to China would have only a "minimal" impact in the recent third-quarter earnings release, the new rules unveiled in early October didn't help sentiment. However, China sales have been very weak, which explains much of the PC shortfall. Should China reopen its economy and stop the endless COVID-19 lockdowns, that could be a positive. However, that likely wouldn't happen until spring.

Overall, there is still a lot of uncertainty surrounding the macroeconomic picture and China. However, AMD's stock price has fallen so much -- down 59% over the past year -- that it may be attractive to investors with a longer time horizon. However, AMD shareholders should just be prepared for a rocky road in the near term.