Advanced Micro Devices Inc. is set to follow yet another rough earnings report from Intel Corp., and once again could show gains in an area that caused pain for its larger rival.

AMD
AMD,
+0.41%

is scheduled to report third-quarter earnings on Tuesday after the close of markets, after Intel
INTC,
-11.68%

reported an earnings beat Thursday that hardly mattered as revenue came in light. More important to analysts was Intel’s forecast for declining margins over the next few years as its chief executive doubles down on new manufacturing capacity to try to retake its former glory as the undisputed chip leader.

That led to downgrades on Friday and Intel’s worst one-day performance since the chip leader said it was going to delay its next generation of chips, an announcement that had fired up even more investor support for AMD back then.

From July: Intel appears to be feeling the competitive heat from AMD

Bernstein analyst Stacy Rasgon, who has a market perform rating on AMD and a $110 price target, said AMD will continue to benefit from Intel’s transition, and called attention to an AMD metric that was one of enormous concern during Intel’s call: Gross margins.

“We believe Street gross margin estimates appear unaggressive going forward (which is not something we have typically said for AMD), and the company is now (for the first time ever) starting to return cash,” Rasgon said.

That underscores another show of how Intel and AMD are transitioning with respect to one another: Analysts on the Intel call were very concerned that Intel’s margins were falling despite company assurances they would stay just above 50% for the next few years. Meanwhile, AMD gross margins have been rising, and are likely to break above 50%, if not in this earnings report, then sometime soon. Three months ago, AMD reported gross margins of 48%, up from 44% in the previous year.

For more: Intel stock logs worst day in more than a year as capital plan raises margin concerns

While AMD is referred to as Intel’s “smaller rival,” that gap has been steadily closing for a while now. At Friday’s close, AMD had a market cap of $145.34 billion, or nearly 73% of Intel’s $200.66 billion. Just this past summer, AMD’s $111.5 billion valuation was a little more than half Intel’s $219.5 billion cap.

One other are to look at will be data-center sales, as finally swung to a gain in that important segment in the quarter. Over the past two quarters, Intel has posted significant year-over-year declines in the increasingly important category, while AMD has more than doubled its sales. That raises the question whether Intel clawed back some market share, or whether data-center sales were just generally better all around, which AMD’s report could answer.

What to expect

Earnings: Of the 34 analysts surveyed by FactSet, AMD on average is expected to post adjusted earnings of 66 cents a share, up from 41 cents a share reported in the year-ago period. Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 72 cents a share.

Revenue: Of the 32 analysts polled by FactSet, AMD, on average, is expected to post revenue of $4.11 billion, up from the $2.8 billion reported in the year-ago quarter. AMD had forecast $4 billion to $4.2 billion. Estimize expects revenue of $4.24 billion.

Stock movement: While AMD earnings and sales have both topped Wall Street estimates over the past five quarterly reports, but shares only gained the next day twice, about three months ago and when the stock popped nearly 13% five quarters ago.

AMD shares rose 9.6% in the third quarter. In contrast, the PHLX Semiconductor Index 
SOX,
-1.22%

declined 2.6%, the S&P 500 index 
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rose 0.2%, and the tech-heavy Nasdaq Composite Index 
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declined 0.4%. On Friday, the day after Intel’s report, AMD shares closed at a record high of $119.82.

What analysts are saying

Cowen analyst Matthew Ramsay, who has an outperform rating and a $120 price target on AMD, said he’s “lookin’ for more of the same.”

“We continue to monitor the PC market for signs of demand slowing or supply improving,” Ramsay said. “Near-term, we see resilient demand outside Chromebooks, but prefer a prudent/agnostic view on 2022 like AMD took on its last call.”

Earlier in the month, research firms released data showing that pandemic-fueled growth in PC shipments had slowed considerably as the world not only wrestles with a chip shortage but overall supply-chain issues.

On data-center sales, Ramsay is even more optimistic estimating that segment will account for more than 25% of sales compared with less than 20% a year ago.

“We believe datacenter passing a quarter of AMD’s business could draw investor attention,” Ramsay said. “We remind investors that the most important business for AMD remains datacenter, which we estimate doubled in 2020, with CEO Lisa Su noting she sees the business momentum accelerating in 2021.”

AMD’s previous earnings: Hey Intel, AMD’s CEO is also ready to ‘fight for every socket,’ while producing strong growth

Susquehanna Financial analyst Christopher Rolland, who has a positive rating and a $130 price target on AMD, said he expects another solid quarter driven by enterprise and server sales, but that “given the slowing PC market, we do not expect mgmt to raise their FY top-line guidance as they have done in numerous updates over the last year.”

Still, Rolland expects AMD to report share gains from Intel in both desktop and laptop PCs as well as enterprise and gaming PCs.

Of the 39 analysts who cover AMD, 23 have buy or overweight ratings, and 16 have hold ratings, with an average price target of $117.55.

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