Can AMD Earnings Catch Up With Intel and NVIDIA?

Advanced Micro Devices (AMD -0.35%) will release its quarterly report next Tuesday, and investors sent the stock soaring last year in hopes that the chip company would stage a lasting turnaround. Yet even if AMD earnings can get into the positive column and stay there this year, it still faces the competitive prospects of Intel (INTC 0.64%) and NVIDIA (NVDA -3.33%), both of which are working hard to cement their own positions in the increasingly cutthroat chip sector.

AMD has had a long history of being an also-ran in the semiconductor industry, with its PC chip sales lagging far behind Intel's. It hasn't really played a major role in the mobile revolution, either, letting NVIDIA and other players steal its thunder. But with a new strategy based on more customized solutions, AMD hopes to be able to tap into growth in other ways. Let's take an early look at what's been happening with Advanced Micro Devices over the past quarter and what we're likely to see in its report.

AMD Radeon R9 Series and HD 7990 graphics cards. Source: AMD.

Stats on Advanced Micro Devices

Source: Yahoo! Finance.

Could AMD earnings really stay profitable?
In recent months, analysts have gotten a bit more excited about AMD earnings, boosting their full-year 2014 projections by a penny per share. The stock has continued to advance, rising 10% since mid-October.

What's particularly impressive about AMD's share-price performance is that it had to overcome a big drop after its third-quarter earnings report. Even though revenue grew 15%, and earnings per share doubled expectations, investors worried about AMD's expectations that margins would drop by another full percentage point, and that it would continue to lose market share to Intel.

What drove a lot of the enthusiasm about AMD stock was the fact that its placement in the popular Xbox One and PlayStation 4 consoles gave investors hope that the company had found a lasting custom niche that it could dominate. That showed up even in third-quarter results, with revenue from its Graphics and Visual Solutions division nearly doubling from year-ago levels. Given NVIDIA's status in the graphics area, AMD's console wins were especially noteworthy -- and necessary given the pressure on the PC industry.

One big issue AMD faces in 2014 is that Intel and NVIDIA are ready to press their respective competitive advantages to bolster their prospects. For NVIDIA, its newly refreshed graphics processing unit line based on its Maxwell architecture could leave AMD scurrying to catch up. Similarly, Intel has used its manufacturing prowess to build much smaller process nodes than AMD can currently duplicate.

Yet AMD is far from giving up. The company managed to get its graphics processors included in the new line of Mac Pros from Apple, and some analysts believe the move could greatly increase its share of the professional GPU market. Given the value of the high end of that market, further success could make AMD a lasting competitive threat against NVIDIA. In addition, Bitcoin miners have found that AMD graphics hardware performs well with the operations necessary to mine Bitcoin, creating further demand compared to lesser performance from similar NVIDIA products.

For AMD earnings to shine, the company needs to make the most of its gaming console opportunity while the new consoles' popularity lasts, but it also needs to convert on its newfound GPU strength. AMD has the potential to keep rising if it can build on its momentum from last year, but it can't afford to miss what could be the best chance in its history of striking it big.

Click here to add Advanced Micro Devices to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.