I’ve covered chipmaker Advanced Micro Devices (NASDAQ:AMD) quite extensively over the past several quarters, and in particular over the past several months as AMD stock has become one of the market’s most actively traded equities.

During that stretch, I was bullish on AMD stock from $20 all the way to $30. Then, once stock in AMD started losing momentum in early October in the lower $30’s, I turned bearish and told investors to take profits and wait for the next earnings report.

Since then, the stock has dropped to $25. Now, earnings are just around the corner. Does that mean it’s time to buy back into AMD stock?

Perhaps.

I think AMD’s numbers will be quite good. Advanced Micro Devices stock has dropped a bunch over the past several weeks because Intel (NASDAQ:INTC) is reportedly gaining traction when it comes to volume production of next-gen chips. When that volume production happens, AMD’s advantage over Intel will be narrowed, if not eliminated and AMD’s numbers should deteriorate.

But, that isn’t happening here or now.

Instead, the current situation is still one defined by AMD having an advantage over Intel. This quarter’s numbers and next quarter’s guide will likely reflect that. As a result, third-quarter numbers will likely be impressive and AMD stock could regain some upward momentum.

Third-Quarter Numbers Will Likely Be Good

The semiconductor narrative that pushed AMD stock from $15 to $35 in a hurry was characterized by AMD having a considerable 10nm lead over Intel. Whereas AMD management was talking up next-gen chip production capacity, Intel management was consistently delaying 10nm volume production. Insiders were commenting on AMD’s technical gains. Analysts were upgrading AMD stock on the idea that this 10nm lead would allow AMD to significantly grow market share.

A natural consequence of this narrative was that AMD stock popped, while Intel stock dropped.

But, in late September, that narrative was flipped on its head. In an important supply update at the end of September, Intel mentioned that 10nm yields were improving and that volume production is expected for 2019. The update was critical because it broke the recent trend of Intel struggling with early stage 10nm production and delaying volume production. Instead, it showed that Intel was gearing up to take market share back from AMD.

Investors freaked out, and the market punished AMD stock. It has since dropped more than 20% off recent highs.

But, third-quarter numbers won’t show any of these fears. Intel is preparing to narrow Advanced Micro’s 10nm lead. It hasn’t done that yet. Third-quarter numbers are a reflection of the current situation, and the current situation is one still characterized by Advanced Micro Devices kicking Intel’s butt. As such, the company’s third-quarter numbers should be quite robust.

Beware of Long-Term Headwinds for AMD Stock

There are a lot of AMD bulls out there, and rightfully so. If this company does figure out how to become a third major player in the semiconductor market, then Advanced Micro Devices stock could soar from here. Intel and Nvidia (NASDAQ:NVDA) both have $100 billion-plus market caps. AMD has a market cap of just $25 billion.

From this perspective, strong third-quarter numbers could re-energize the bulls. Meanwhile, strong Q3 numbers could also freak out the bears (nearly 20% of the float is short). The result will be a bunch of bulls buying for potential long-term upside, and a bunch of bears buying as shorts rush to cover. Thus, strong third-quarter numbers could catalyze big volume buying.

Despite my near-term bullishness on AMD stock ahead of the print, I’d also like to offer some caution. My thesis on AMD stock has been fairly simple. So long as this company can continue to grow market share, the stock should be stable and/or head higher. But, once market share expansion stops, stock in AMD is subject to material weakness.

There aren’t any signs that market expansion stopped this quarter. But, market share expansion should stop in early to mid 2019 when Intel ramps 10nm production. When that happens, I think it is best to avoid AMD stock.

Bottom Line on AMD

Third-quarter numbers from AMD will likely be pretty good, and those strong numbers could provide a nice lift to recently depressed AMD stock.

As of this writing, Luke Lango was long AMD and INTC.