The odds were stacked against Advanced Micro Devices (AMD 0.52%) leading up to its third-quarter 2022 earnings report. The slump in personal computer (PC) sales was all set to wreck this fast-growing chipmaker's momentum. But it looks as if the company did well enough to earn investors' vote of confidence.

Shares of AMD headed north after the company released its Q3 results on Nov. 1. The semiconductor giant slashed its guidance substantially last month owing to the PC market's weakness, but it still put up decent numbers thanks to its diversified business segments.

Let's take a closer look at AMD's Q3 results and check why the company is performing well when its rivals are not.

AMD reports impressive growth despite headwinds

AMD's Q3 revenue increased 29% year over year to $5.6 billion, which was in line with the updated guidance the company issued on Oct. 6. IDC estimates that PC sales were down 15% year over year in the third quarter, forcing manufacturers to reduce demand for processors. Not surprisingly, AMD pointed out that there were "substantial inventory reduction actions across the PC supply chain."

This led to a whopping 40% year-over-year decline in the company's client segment revenue to $1 billion. The segment reported an operating loss of $26 million, down substantially from the prior-year period's operating profit of $490 million because of the revenue decline.

It is worth noting that the average selling price (ASP) of AMD's client processors increased year over year, suggesting that it enjoyed healthy pricing power despite weak demand. The company's non-GAAP gross margin growth of 150 basis points over the year-ago quarter also suggests that the company didn't have to resort to discounts to move inventory. However, the PC market's weakness led to an 8% year-over-year decline in AMD's earnings to $0.67 per share.

The bad news is that a sluggish PC market will continue to weigh on AMD's fourth-quarter numbers. Management forecasts a decline in the client and gaming segments in Q4. That's not surprising, as PC shipments are expected to drop once again in the current quarter, which means that AMD's client processor and graphics card sales are going to take a hit.

Still, AMD's guidance points toward a resilient performance in tough times. The company guided for $5.5 billion in revenue this quarter at the midpoint of its guidance range, which would be a 14% increase over the prior-year period. The company also anticipates a non-GAAP gross margin of 51%, which would be a slight improvement over the year-ago quarter's figure of 50%.

AMD pointed out on the earnings conference call that the data center and the embedded businesses will help the company offset the weakness in the gaming and client businesses. It won't be surprising to see these two segments help AMD weather the storm in the PC market.

The chipmaker's growth is here to stay

AMD's data center business turned in a stellar performance last quarter, with revenue from the segment jumping an impressive 45% year over year to $1.6 billion. The segment's operating income margin also increased to 31% from 28% in the prior-year period.

The data center business's growth was driven by the growing adoption of its EPYC server processors. CEO Lisa Su remarked on the earnings conference call:

Cloud revenue more than doubled year over year and increased sequentially as multiple hyperscalers expanded deployments of EPYC processors to power their internal properties and more than 70 new AMD instances were launched by Microsoft Azure and Amazon, Tencent, Baidu, and others in the quarter.

According to third-party estimates, AMD's share of server processors increased to 27.6% in the third quarter. That figure is expected to jump to 30.3% in the fourth quarter, driven by the launch of its fourth-generation processors. AMD already lined up the likes of Hewlett Packard Enterprise, Dell, Lenovo, and Super Micro to make servers using its latest processors.

Given that rival Intel's next-generation Sapphire Rapids server processors ran into delays, AMD now has an opportunity to corner a bigger share of this lucrative market. Bank of America, for instance, expects AMD's server market share to hit 35%, which it can achieve thanks to the technological advantage it enjoys over Intel.

Meanwhile, the embedded business, which includes sales of field-programmable gate arrays (FPGA), adaptive system-on-a-chip products, and adaptive computing acceleration platform (ACAP) products, is going to be another key growth driver for AMD. The segment's revenue came in at $1.3 billion last quarter, up 1,549% over the year-ago period thanks to the inclusion of revenue from Xilinx, which AMD acquired in February this year.

The Xilinx acquisition opened a massive growth opportunity for AMD, giving the latter access to the fast-growing FPGA and adaptive computing markets. These chips are deployed across several fast-growing applications ranging from data centers to automotive to 5G wireless networks. AMD estimates that Xilinx will expand its total addressable market by $33 billion by 2025. Given that Xilinx generated $3.9 billion in revenue in fiscal 2022 (which ended in March 2022), it is evident that both companies are at the beginning of a terrific growth curve.

Not surprisingly, AMD's top line is set to head higher over the next couple of years.

AMD Revenue Estimates for Current Fiscal Year Chart

AMD Revenue Estimates for Current Fiscal Year data by YCharts.

In all, AMD's solid catalysts and its ability to deliver growth during difficult times make it a top tech stock that investors can buy right now, especially considering its forward earnings multiple of 15.6, which represents a nice discount as compared to the Nasdaq-100's forward earnings ratio of 21.