Advanced Micro Devices - AMD

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From the October 15, 1979 IPO of AMD to approximately 10/2014 when Lisa Su took over as AMD’s CEO, AMD stock was generally a big laggard versus the S&P 500 and industry peers. Since Lisa became the CEO and pivoted the company in a major new direction which included Intel’s fall from grace, AMD stock has returned a whopping 3510% versus 160% for the S&P 500. New leadership, a new direction, and faltering competition can be a wicked combination for outperformance.
— Source: Ycharts.com

COMPANY PROFILE

For more than 50 years AMD has driven innovation in high-performance computing, graphics and visualization technologies. Billions of people, leading Fortune 500 businesses and cutting-edge scientific research institutions around the world rely on AMD technology daily to improve how they live, work and play.

Consider some powerful facts:

  • There’s now $9 billion authorized for share buybacks as of 2/28/22.

  • Post the completed Xilinx acquisition - AMD to offer industry’s strongest portfolio of leadership CPUs, GPUs, FPGAs & Adaptive SoCs to address a $135B TAM.

  • Fiscal 21 - data center revenue doubling year-over-year driven by growing adoption of AMD EPYC processors across cloud and enterprise customers.

  • Q4 2021 - Free cash flow generation was $736 million in the quarter, this business is beginning to really generate sustainable free cash flow.

  • AMD now powers 73 supercomputers and four out of the top 10 most powerful supercomputers in the world, as well as the most powerful supercomputer in EMEA

  • In the semiconductor industry, once you get designed out (Intel), it’s very hard to get designed back in. AMD has some wicked momentum these days.

 

Style Factor Details

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where AMD scores well as of 2/27/2022:

  • 80% attractive margin expansion

  • 93% strong free cash flow growth

  • 99% strong 9 month price momentum

  • 97% high operating ROIC

  • 82% accelerating sales growth 1YR vs 3YR average

  • 70% high absolute free cash flow

  • 95% high ROIC over WACC - weighted cost of capital

  • 97% high operating ROIC

  • 96% low debt to enterprise value

  • 91% strong EPS & sales growth revision trends and earnings beats

  • 85% high R&D spend to help extend their innovation lead for sustainable earnings and revenues

  • 85% strong 1 year sales growth

  • 84% strong 3 year sales growth

2/23/22 Update

Similar to NVDA & ASML and other semiconductors, the sheer amount of tech innovation that needs more and more computing power and semiconductor “brains” is mind-numbing. The simplest of devices now have chips in them. We aren’t going backward. AMD was a nobody for a very long time and when Intel started to lose its way and Lisa Su became the CEO, there was a major inflection point in the company and the stock. The game is AMD’s to lose now, Intel will continue to struggle too find its footing and AMD, particularly with the Xilinx acquisition, should continue to lead with its impressive roadmap and market share gains. AMD’s impressive share gain in the server & client CPU market seems to have legs. The cloud computing opportunity also appears to be strong as more and more devices are powered by AMD. These share gains should lead to continued gross margin expansion opportunities. Most industry peers will remain supply constrained for at least the first half of the year - good for pricing power, bad for capturing maximum amounts of demand but with every firm in the same boat, this seems less important for now. I do worry about the catch-up of supply and demand and how that affects pricing at some point but for now, the business is performing at a very high level. While it performs, we should continue to see strong free-cash flow generation which will be used, in part, to fund strong R&D initiatives. That’s exactly what you want to see to keep the lead and expand it. Honestly, I would prefer the company be even more aggressive with R&D innovation than buybacks but the stock isn’t particularly expensive so these buybacks can be accretive over time. As always, risks are associated with the low-end PC market, a constant theme for anyone serving this market. But with the pullback in the stock and tech in general, the stock is now trading at the lower end of its range so when I see business strong and showing market share gains coupled with a better valuation and correction, I get very excited to start buying. That’s where I am with AMD and based on all the datapoints, the stock looks like it has 25%+ left in the stock over the rest of the year, all we need is some clarity and calm.