Advanced Micro Devices (AMD 1.36%) is an eternal underdog in the PC processor race. Intel (INTC 1.17%) not only invented the market but never lost its iron-fisted stranglehold.

Here's what the key processor markets looked like in 2011, according to the market watchers at IDC:

Note that these figures deal with unit shipments. AMD's share shrinks even further if we switch to dollar sales, since the company tends to undercut Intel on pricing.

To add insult to injury, Intel is taking market share from AMD in two of the three categories. The underdog took a small bite out if the laptop market last year.

But the laptop and desktop markets are ailing today. Tablets and smartphones are replacing traditional computers for many of our daily computing needs, shifting much of the workload to your pants pockets. ARM Holdings (ARMH) and a host of technology partners have captured that market, leaving Intel and AMD out in the cold. But that doesn't mean you should forget about the traditional processor guys -- they still make the mobile world tick because they power the servers on the other side of the cloud-computing equation.

Yes, every time you tap your phone to check the weather and football scores, you're tapping right into the cloud. The back-end server's role grows larger in more complex tasks, like mapping apps with turn-by-turn navigation or online games with millions of players. And Facebook (META -10.85%) is a cloud-computing beast from head to toe.

ARM would love to break into this market, but it hasn't happened yet. AMD and Intel remain the dueling elephants -- though one is massively larger than the other. This is where the lifeblood of the PC-compatible chip market still runs thick and red while other markets thin out day by day.

On the outside, looking in
So is AMD looking at a massive growth opportunity in one of the world's hottest markets, or simply fighting to stay alive in Intel's growing shadow?

Well, Intel isn't exactly feeling any competitive heat in the server market:

Source: S&P Capital IQ.

Intel's data center revenue is rising. Margins are high and stable. If AMD or ARM posed any credible threat in today's market, you'd see at least one of these metrics falling off a cliff. But that's not at all what's happening.

AMD doesn't break out server sales in a separate division, but management likes to discuss them in conference calls. In the second quarter, CEO Rory Read marked his "low-power, disruptive server technology" as a growth driver in the near term, but also noted that second-quarter sales were below AMD's own expectations.

The company pins its hopes on an array of new products. The tablet space just got a boost as AMD introduced a brand-new low-power chip, built to run Microsoft's (MSFT -3.28%) upcoming Windows 8 software. Later, the Bulldozer server architecture will get an update currently code-named "Steamroller," which management expects to take some market share from Intel.

But AMD isn't making these moves in a vacuum. No system builders have announced any Hondo-based tablets yet, and Intel is pushing its own Clover Trail processor into the same space. As for servers, Intel's Ivy Bridge desktop chips are moving into the server space as well, to nobody's surprise. That Steamroller chip needs to crush Intel's latest and greatest in important categories such as price-to-performance and performance-per-watt. It's not impossible, but the lack of pre-release buzz from AMD's PR department tells me that Intel can rest easy this time.

Moreover, AMD has hitched its wagon to a losing horse. The company's largest customer happens to be Hewlett-Packard (HPQ -0.50%), with a 22% share of AMD's total sales. I don't know if you've heard, but HP is losing its coveted No. 1 spot in the global market for computer systems, and has already lost the throne to Lenovo in at least one market analyst's view. That's just part of HP's larger quest to stay relevant in a changing market, and CEO Meg Whitman is losing that battle. And when HP sinks, AMD loses its most valuable customer.

What does it all mean?
If AMD manages to claw back the once-impressive stature it held in server-chip sales, the turnaround would be dramatic indeed. But the deck is stacked against the company.

I used to think that AMD would make it back to the big stage, and that the stock should be worth about $10 on that basis. Now, the risks outweigh the opportunity, and the stock looks just about fairly valued at $3 and change.