Advanced Micro Devices on Tuesday showed the world that it is an emerging force in the AI chip race, as its data center business helped fuel better-than-expected quarterly results.

• Revenue in the three months ended June 29 advanced 9% year over year to $5.84 billion, topping estimates of $5.72 billion, according to LSEG.

• Adjusted earnings per share (EPS) rose 19% on an annual basis to 69 cents, beating estimates by a penny, LSEG data showed.

AMD’s report landed at a rocky moment for the stock and its fellow members of the artificial intelligence trade. At least for a moment, the chipmaker’s results and upbeat commentary on its AI business are soothing the worst of investor fears, with shares jumping more than 7% in extended trading.

It’s a much-needed lift. AMD has been punished during the July market rotation out of tech winners and into small caps and other lagging parts of the market. Since mid July, AMD shares had fallen more than 24% in total and turning negative year to date.

The crux of our thesis is its burgeoning AI chip business, and Tuesday’s updates were encouraging. Sales of its MI300 chips — high-powered processors used in data centers to run and train AI applications — exceeded $1 billion in the quarter, the first time above that threshold since launching in late 2023. And crucially, AMD upped its full-year sales projections for those chips to more than $4.5 billion, a $500 million increase from the guidance offered in April.

The MI300 guidance was by far the most important part of the report, and the stock reaction indicates that investors are satisfied with the magnitude of the hike, even though there was some chatter on Wall Street that some influential players were expecting a $5 billion projection.

AMD sold off on its first-quarter earnings report due in large part to its MI300 sales guidance falling short of sky-high expectations. At this point, the market seems to have developed a more realistic view of what AMD can do, especially considering the company has run into supply constraints in trying to meet demand. Investor expectations have surely come down in the stock’s recent sell-off as well.

On the earnings call Tuesday, CEO Lisa Su said AMD has made progress on MI300 availability, but expects supply to remain tight through 2025. That commentary echoes what we’ve been hearing from its main rival in the AI chip market, Nvidia. In both cases, demand outpacing supply is the definition of a high-quality problem. Nvidia remains the dominant player in AI chips, but AMD is continuing to carve out a lane in the rapidly expanding market.

Su also spoke favorably about AMD’s partnership with the tech giant Microsoft, which is a key buyer of MI300 chips. Among the highlights, Su said Microsoft has expanded its use of the AI chips for certain software applications, including messaging app Teams. For its part, Microsoft on Tuesday night reiterated its guidance that fiscal year 2025 capital expenditures will be higher than fiscal year 2024 — and AI chips are a big part of that spending.

The second part of our thesis in AMD is the recovery in personal computer sales, driven by both the general need to upgrade PCs bought during the Covid-19 pandemic and the roll out of AI-infused machines. Momentum in the PC business continued in the second quarter alongside rosy commentary about the back half of the year.

Su said AMD is expecting its PC segment to experience stronger-than-normal seasonality as machines hit the market containing its new “Zen 5” processors. “That’s the primary reason that we see above-seasonal. The AI PC element is certainly one element of that, but there is just the overall refresh,” Su said. Su suggested that AI PCs will be a bigger contributor to growth down the road. “Into 2025, you’re going to see AI PCs across sort of a larger set of price points, which will also open up more opportunities,” she said.