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AMD (AMD) announced its second quarter earnings after the bell on Tuesday, topping analysts' projections on the top and bottom lines and providing a better-than-anticipated Q3 outlook.

But that wasn't enough to impress investors, as shares fell more than 8%.

"We enter the second half with strong momentum as Epyc [processor] demand accelerates, Instinct deployments scale and Helios begins to ramp," CEO Lisa Su said in a statement.

"More broadly, AI is driving a significant expansion in demand for compute across all of our markets, and our leadership portfolio and growing customer visibility position us exceptionally well to capture this expanding opportunity and deliver substantial revenue and earnings growth in the years ahead."

For the quarter, AMD reported earnings per share (EPS) of $1.66 on revenue of $11.5 billion. Analysts were anticipating EPS of $1.62 on revenue of $11.3 billion, according to Bloomberg consensus estimates. The company saw EPS of $0.48 and revenue of $7.6 billion in the same quarter last year.

AMD said it sees Q3 revenue of between $12.7 billion and $13.3 billion. Analysts were projecting $12.5 billion.

Second quarter data center sales climbed to $6.7 billion from $3.2 billion last year, and ahead of analysts' expectations of $6.5 billion.

AMD's client segment generated $3.1 billion analysts were looking for $3 billion in sales. The company's gaming division brought in $779 million analysts estimates called for $781 million.

AMD also said spent $808 million on capital expenditures during the quarter, well ahead of earlier estimates of $298 million.

The PC industry is facing a downturn due to rising memory prices, which could affect AMD and Intel's PC chip businesses in the coming months.

After a massive run-up across the sector that saw the Philadelphia Semiconductor index (^SOX) jump more than 100% over the past year, chip stocks have paused since roughly mid-June, with the group dropping 14% as of Tuesday afternoon, according to AlphaSpace data.

AMD stock has climbed an impressive 200% over the past 12 months, thanks to the rise of AI agents. AI agents rely on central processing units (CPUs) to perform tasks for users, such as preparing spreadsheets or sending emails.

That has made CPUs, like those AMD produces, far more important to hyperscalers like Microsoft (MSFT) and other AI cloud companies.

However, that has also helped AMD rival Intel (INTC), which is up more than 420% in the same timeframe.

But AMD has a trick up its sleeve that Intel doesn't.ย 

Late last month, the company launched its Helios rack-scale platform for AI data centers. The system, which features 72 AMD MI455X graphics processing units (GPUs), as well as several of the company's Instinct CPUs, is designed to go toe-to-toe with Nvidia's (NVDA) own Blackwell and Rubin-based NVL72 rack-scale systems.

CEO Lisa Su isn't shy about taking on Nvidia either. The two companies have competed in the gaming graphics card space for years.

According to Su, the Helios rack provides 15% better compute performance than Vera Rubin and offers 50% more high-bandwidth memory capacity. Helios, she added, also provides 30% more tokens per dollar than Nvidia's servers.

Nvidia dominates the AI chip space, accounting for as much as 90% of market share in any given quarter. But even a small slice of that would be a boon for AMD.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on X at @DanielHowley.

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