AMD - Advanced Micro Devices, Inc

I sold all of my $AMD shares on 1/19 to pay off my mortgage early. It was a tough decision and may get back when I have more dry powder.

 

And how is the processor?

 

It seems to hit 86.22 for the first target.
let's see next week

 

Speaking of car GPUs, AMD just signed Tesla as a customer. Tesla has indicated they will add advanced, game play, graphics to the S/X platform.

I think I understand this decision path but I would expect 3/Y owners to use game play a lot more than S/X owners. Perhaps this chip will be used across the entire car family, as the platforms are refreshed (S/X just coming out of a refresh cycle).

Chip sales are not published but I speculate AMD sells about 10M CPUs per year and perhaps about 6M GPU/APUs.

Tesla sold right around 50K S/X, last year. That is the lowest number in a while, perhaps due to the models getting a little bit stale, at least, by Tesla standards.

This year, I expect Tesla to sell a lot of S/X. I predict 125~150K units.

Even at this level, it doesn't seem like a significant win for AMD. Tesla didn't mention the roadster but I would assume it will have it, also. That's another couple of hundred units in 21.

On the other hand, if all Teslas get this chip, at the next refresh, that will mean 1.75~2M units by 2024. That is significant.

 

I did a recent DD writeup for AMD - and it's still undervalued.


Company Overview:

AMD is a global semiconductor company that develops high-performance computing/visualization products to solve some of the world’s toughest challenges. AMD has a wide variety of products that fall under the following categories:

• X86 microprocessors, discrete/integrated Graphics Processing Unit’s (GPU’s), professional GPU’s, and development services
• Server/embedded processors, System-on-Chip (SoC) products, development services, and technology for video game consoles.

Investment Information:

Macroeconomic Outlook:

COVID-19 has ravaged global supply chains causing shortages in many commodities such as lumber, toilet paper, hand sanitizer etc., however, one of the most impactful shortages as of late has been the microchip/semiconductor shortage.

The global semiconductor shortage has caused panic in several industries, but most notably in the automotive manufacturing industry. Many companies like Ford and GM have been forced to halt their production due to this shortage, foregoing hundreds of millions in lost revenue. Although some manufacturers (ie. Tesla) have been able to avoid this shortage, many plants in North America were forced to shut down temporarily, causing higher job loss in the automotive industry. However, the automotive industry is not the only segment of the population that Is struggling for semiconductors and chips.

Due to the recent spike in popularity of cryptocurrencies, many people have turned to mining as a source of income/passive income. However, in order to mine these currencies, miners need to purchase one, if not 100’s of GPUs in order to start their mining operation. Just to give you an idea of how many GPUs are demanded by miners, it was estimated that in Q1 of 2021 alone, miners bought 700,000 GPU’s, this increased demand has driven the average price for a GPU up 2.5-4x. These miners definitely played a role in the acceleration of the semiconductor shortage and the damaging of global semiconductor supply chains.

Additionally, some analysts believe that PC sales rose by a massive 18.1% due to the pandemic. This is because many people needed personal computers in order to work from home, participate in distance learning, and potentially just for leisure due to the pandemic’s constraints on daily life. However, due to the increased demand for GPUs from the cryptocurrency miners, it became increasingly difficult for people to order their own personal PC’s. This overall increase in demand from both consumers and miners caused computer and computer part prices to skyrocket, applying further pressure on global supply chains.

Due to the huge demand from these separate industries/populations, semiconductor and chip manufacturers like AMD are able to profit massively, while sustaining a large backlog of orders and sustained demand. This has been recognized in their stock price as their share price has increased by 57% over the past year. However, how long will this increased demand last for? And how much profit is still left on the table for these companies until this demand subsides? These 2 questions are very important for AMD investors as it will help us to find the potential upside that is still left in this investment.

In a recent market study, analysts have estimated that the global semiconductor industry is set to grow at a CAGR of 8.6% over the next 7 years (until 2028). This helps investors to recognize the lasting demand for these semiconductors, and that it may be worth holding for the long run. Furthermore, analysts are also forecasting the global GPU market to grow at a CAGR of 33.6% for the next 6 years (until 2027), this growth is huge and shows the large potential in an investment into AMD. Lastly, it is important to look at AMD’s market share and how it is growing. Since Q2 of 2021, AMD was able to grow their market share by 5.9 percentage points, which is extremely good. If AMD is able to continue to grow their market share, in these quickly growing markets, it would hint at them being the best performer in the industry over the next 10 or so years. This is the main reason why people are so bullish on AMD, and why such an investment can be lucrative.

Sources:

What’s behind the semiconductor shortage and how long could it last? (brookings.edu)

Cryptocurrency Miners Bought 700,000 GPUs in Q1 2021 - ExtremeTech

The PC market will grow significantly this year then decline in 2022 (gizchina.com)

AMD's Market Share Surges on Steam and in Servers, Shrinks Overall - ExtremeTech

GPU Market Size, Share & Forecast by 2027 : Graphics Processing Unit (alliedmarketresearch.com)

Semiconductor Market to Reach USD 803.15 Billion by 2028: (globenewswire.com)

Intellectual Property:

AMD has been approved for 4,200 patents in the USA and is in the application process for 1,000 more. Additionally, AMD has over 7,500 issued patents worldwide (3,300 outside of the USA), and is in the application process for 3,000 more patents (2,000 outside of the USA).

These patents help AMD to protect their products and technology from unauthorized third-party manufacturing (clones).

Financial Information:

• Financial Performance (Good): AMD’s net revenue increase by 45% YoY, their net income increased by 630.21% YoY, their operating income increased by 116.96%, they improved their gross margin from 43% to 45%, and they had an income tax benefit of $1.2B.
• Financial Performance (Bad): AMD’s R&D expense increased by 28.18% YoY, this could, however, be considered “good” because AMD needs to keep improving their technology in order to continue to innovate and gain market share. Also, AMD’s cost of sales increased by 40.20%, which is high, however it is lower than their increase in revenue which is good (helps to increase their margins). Lastly, AMD’s marketing, general, and administrative costs increased by 32.67% which is quite the large increase.
• 2026 Convertible Senior Notes: Currently AMD has 28 million shares ties up in these convertible notes. Part of the conversion terms is that these notes can be converted into common stock at $8 per share, so we can expect all of these convertible notes to be converted prior to 2026. If all of these convertible shares were to be converted into common stock, then there would be a dilutionary effect of 2.3%.
• Stock Options: As of December 31st, 2020, AMD has 6 million shares tied up in options, which can be exercised this year at $7.01 per share. I think it is safe to assume that these options will all be exercised, and if this happens it will cause a dilutionary effect of 0.5%, which is relatively low.
• RSU’s (Restricted Stock Units): Currently, AMD has 12 million shares that are unvested in their RSU’s, and the average remaining life is 1.13 years. So, we can assume that these will be vested by the end of this year, which would dilute existing shares by about 1%.
• PRSU’s (Performance RSU’s): Currently, AMD has 3 million shares outstanding through their PRSU’s, with an average contractual life of 2.25 years. Assuming all of these PRSU’s are vested, then AMD’s stock would experience a dilutionary effect of 0.12%/year.
  • Note: Employee Stock Purchase Plan (ESPP) is made up of a combination of RSU’s and PRSU’s.
• Common Stock Repurchases (for tax withholding on equity awards): In 2020, AMD repurchased approximately 1 million common shares, this would cause stock inflation of 0.08%, which is essentially negligible.
• Average Share Dilution: Over the past 3 years (FYE Dec 2017 – FYE Dec 2020), AMD has experienced an average share dilution of roughly 7.79%. However, the total dilution expected for 2021 based on all of the above factors/plans is 3.84%, which is similar to that of 2020. This shows that AMD has recently started to lower their share dilution which is a good sign for investors.

Competitors:

My comparable analysis requires 4 companies, in which I can compare AMD’s financial ratios, to the ratios of their 4 biggest competitors.

The 4 closest competitors that I found were Intel, Nvidia, Marvell Technology, and Qualcomm.

I chose these 4 companies given their market caps, their operations, their geographies, and their business models.

Valuation information:

WACC #1:

I was able to find my optimistic WACC, through TrackTak’s website and online DCF calculator. They estimated that AMD has a WACC of 8%, which I used in my bullish DCF model.

WACC #2:

I was able to find this (pessimistic) WACC through a website called “Gurufocus”, in which they estimated AMD’s WACC to be 11.9%

CAGR #1:

I calculated this optimistic CAGR by finding AMD’s average EBIT growth rate over the past 3 years of operations. By doing this I arrived at an average annualized growth rate of 71.21%, which I used in my bullish DCF model.

CAGR #2:

I calculated this pessimistic CAGR by taking AMD’s average revenue growth over the past 3 years, by doing this I arrived at an average annualized growth rate of 22.79%, which I used in my bearish DCF model.

Interest Expense Decrease Rate:

I was able to find this figure by taking AMD’s yearly interest expense decrease over the past 3 years and average it to find an interest expense decrease rate of 28.01%.

Tax Rate:

I found AMD’s effective tax rate to be 3% through their SEC 10-K filing.

Investment Valuation:

In order to value AMD, I decided to undergo 3 comparable analyses, as well as 2 different DCF models. I did this in the hopes of achieving unbiased, well-rounded results, to show multiple cases (bullish, and bearish)

DCF Models:

DCF #1:

This DCF model was the more optimistic of the two, using the 1st WACC, and the 1st CAGR values found in the “valuation information” section above. Through conducting this DCF model I arrived at a fair value per share of AMD of $178.85, which would imply a price increase of 111.50%. The result that I achieved in my bullish DCF model is similar to that of the highest analyst price targets, which helps me to verify the accuracy of this DCF to some extent. However, this is still a very optimistic assumption, so I decided to undergo another DCF analysis to get the more bearish case.

DCF #2:

This DCF model uses the bearish assumptions of the 2nd WACC, and the 2nd CAGR also found in the “valuation information” section above. This DCF arrived at a fair value of $16.50 per share of AMD, this would imply a price decrease of 80.49%. This DCF valuation is similar to the lowest valuation given to AMD by analysts, which helps me to verify that these numbers are accurate and represent the most bearish case. This is very bearish, so I decided to take the average valuation of the DCF models in order to get 1 all-encompassing, non-biased, DCF valuation.

Average DCF Valuation:

By taking the average of my two results achieved in my DCF models, I arrived at an average fair value of $97.67, which implies an upside of 15.50%, which is very reasonable, realistic, and achievable given the macro-outlook. This is similar to the average valuation given to AMD by several analysts, which once again, strengthens my belief that these numbers are accurate, and AMD has the potential to reach this target.

Comparable Analyses:

EV/EBITDA:

By comparing AMD’s EV/EBITDA multiple to that of their competitors (listed above in the “competitors” section), I found AMD’s fair value to be $67.40. If this were the case then the downside of this investment would be 20.29%, this would be a large downside given the potential that AMD has, so I decided to undergo further comparable to see if this valuation was consistent.

EV/Revenue:

By comparing AMD’s EV/Revenue multiple to that of their competitors, I arrived at a fair value of $105.74/share. If this was the case, then there would be an implied upside of 25.05%. This conflicts with the result achieved through the EV/EBITDA comparable, and implies that AMD is undervalued. I decided to undergo one last comparable to strengthen my bullish/bearish assumption of AMD.

P/E:

By comparing AMD’s P/E Ratio to that of their competitors, I arrived at a fair value of $91.79, which implies an upside of 8.55%. This implies that AMD is slightly undervalued but does not necessarily support my conviction if the comparable analyses imply a bullish or bearish case. As a result of this uncertainty, I decided to take the average result as achieve in each comparable, to get one final fair value.

Average Comparable:

By taking the average of the comparable analyses, I arrived at one final fair value of AMD of $88.31/share, which implies an upside of 4.44%. This signals that AMD is currently slightly undervalued and represents a good opportunity to enter into a position.

Risks:

• Dilution: As mentioned before there are multiple streams of possible dilution for AMD shareholders. However, the highest dilution I can see on AMD shares this year is 3.84%, which is very low for a company that is growing as fast as AMD is. The last time in which $AMD issued shares was April 23rd, 2021, in which they offered 10M new shares. Lastly, AMD has a yearly shares outstanding growth rete of 5.44%.
• Financial Performance: In 2020, there was not too much in the way of poor financial performance. Sure, some of their expenses increase, however they did not increase to the extent which revenues and income increased. However, in the future, if we see these expense increasing at or higher than revenue, this will cause uncertainty and possibly lower share prices. Furthermore, AMD has high expectations when it comes to earnings, and if they cannot deliver, there share price will be affected.

Catalysts:

• Financial Performance: Recently, AMD has been crushing their earnings reports, and their growth rate is insane. If they can continue to grow at this rate or even close to this rate, they will blow past earnings expectations and rally/excite investors. The more consistently high AMD performs the more confident I will be in my DCF models. AMD’s next earnings release is on July 27th 2021, In which their expected EPS is 0.54 which is quite optimistic (0.10 higher than the previous quarter. However, AMD has outperformed on their past 4 earnings reports despite some high estimates, and I believe that they will do it again.
• Sustained Demand: Currently, there is a unprecedented level of demand for both semiconductors and GPU’s, as I mentioned previously. If this demand continues at the rate it is expected to or even higher than this rate, AMD will present an even more attractive valuation to investors.
• Market Share: If we see AMD continue to eat away at Intel’s market share, this will be extremely bullish for AMD as they will take advantage of their growth in the market, as well as the overall growth of the market itself. This could help AMD to be one of the top growers in this market.

Source with images can be found here

 

Held that $75 support and looks like it is gunning for new highs.

 

Short term volatility is coming!!
One of the main arguments for investing - enter & exit timing
AMD FOMO???
Find out now ↓
--- Promise or non-sense? ---

About the company

60% of the revenue comes from making processors and GPU for PC, laptop and server (and from me). Other 40% are more chips and technology for game consoles. AMD’s data center business is growing like crazy, and now they’re on their way to acquire Xilinx (Leading provider of adaptive computing solutions). Cause why not?

Is AMD making money ACTUALLY?

YES, revenue is TWICE as much (99%) as it was last year. Along with HUGE growth on net income and earnings per share, everything’s growing. Price is also at an all time high. Will it do even better? I’d say very likely. Based on chip demand and their business plans, as I mentioned above.

Is AMD worth trading/Investing?

For swing traders: From a technical viewpoint, the trend is still looking strong. I’d say there’s more room to grow. Even my cat could tell, just please don’t go all in tho, ok? This is another great topic I would love to discuss, how do you deal with stocks that’re at all time high? For investors: As a gaming nerd, we all know there’re many great games that got postponed due to the pandemic. Fellow nerds are saving up their money for an upgrade. Also, the unsatisfied chip demand. All things considered, AMD is a great investment. I would suggest averaging down. Look out for a correction because when everyone's optimistic about a stock, correction tends to mess with you.

Date Written: 2021/8/4, before market open.

 

I've been a long-time AMD investor, buying my first shares at <2 and have an average share price of <5. Pretty much once it got into the 20s, it generally either met or outstripped my DCF valuation of the company (that is to say, it's always been fairly valued or overvalued in the last 3 years). There were times when my signals were telling me to sell, and I didn't sell a share (this is a clear no-no, but do as I say...). Finally when it when to just over 90 and my internal valuation was saying 70...I did sell about 20,000 shares, and for a decent bit looked pretty prescient as the stock went below 70 for a bit...only to see this now happen and having me curse that sale (another no-no, but again...).

It is a very solid company. The main thing I've underestimated is just how much it can grow (and so efficiently), as much as the market estimations of future growth.

 

Congratulations on your paid-off house!

 

At what level would you consider to step in, after the pullback? 95$?

 

Could be a little sooner/higher. I'm waiting to see if the next downward thrust is shortened. The last two down-thrusts could not make it to the demand line of the downtrend channel before buyers came in. I think we'll see one more low though. Note that the supply of stock in this market (volume) is shrinking.

30-minute bars: