4
Advanced Micro Devices, Inc. (AMD)
- Equity
- US
- Technology
RISK
RETURN
Key risk factors
Good trading liquidity
Meaningful price volatility
Moderate default risk
Key return factors
Strong growth
Greatly overvalued vs peers
Very low or no dividends
Company profileAdvanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company operates in two segments, Computing and Graphics; and Enterprise, Embedded and Semi-Custom. Its products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services; and server and embedded processors, and semi-custom System-on-Chip (SoC) products, development services, and technology for game consoles. The company provides processors for desktop and notebook personal computers under the AMD Ryzen, AMD Ryzen PRO, Ryzen Threadripper, Ryzen Threadripper PRO, AMD Athlon, AMD Athlon PRO, AMD FX, AMD A-Series, and AMD PRO A-Series processors brands; discrete GPUs for desktop and notebook PCs under the AMD Radeon graphics, AMD Embedded Radeon graphics brands; and professional graphics products under the AMD Radeon Pro and AMD FirePro graphics brands. It also offers Radeon Instinct, Radeon PRO V-series, and AMD Instinct accelerators for servers; chipsets under the AMD trademark; microprocessors for servers under the AMD EPYC; embedded processor solutions under the AMD Athlon, AMD Geode, AMD Ryzen, AMD EPYC, AMD R-Series, and G-Series processors brands; and customer-specific solutions based on AMD CPU, GPU, and multi-media technologies, as well as semi-custom SoC products. It serves original equipment manufacturers, public cloud service providers, original design manufacturers, system integrators, independent distributors, online retailers, and add-in-board manufacturers through its direct sales force, independent distributors, and sales representatives. The company was incorporated in 1969 and is headquartered in Santa Clara, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
239.80
109.40
PEG
6.30
-
P/B
4.80
4.60
P/S
11.70
10.50
P/FCF
228.30
81.90
EV/EBITDA
64.70
69.00
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Mixed
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 30ppts over past six months and grown 3ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Neutral
The average target price is 170 and suggests 2% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 232.6. This translates into 41% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 55.8. This is equivalent to 66% downside potential in the worst case.
Profitability: Modest
RoE
Advanced Micro Devices, Inc. reported a return on equity (RoE) of 2.0% in the last 12 months, down from 4.2% in FY22. The market consensus projects an RoE of 1.9% in FY24, again behind its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 1.6% in the last 12 months, a decrease from 3.3% in FY22. The market analysts predict that RoA will be 1.5% in FY24, again weaker than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 1.8%, below the peers. The consensus estimate for FY24 for RoCE is 1.2%, again behind the peers.
Net margin
EBITDA margin
Historically, AMD has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 4.9%, down from 5.6% in FY22. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 18.1% in the last 12 months, up from 14.3% in FY22.
RoIC / WACC = 0.5(weak value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.5 in the past several years. This ratio implies a weak shareholder value creation. Growth: Strong
Revenue
EBITDA
EPS
Free cash flow
AMD reported revenue of USD 22 680mn in the last 12 months, down 4% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 42% from FY22 to USD 0.52. Market expects EPS to reach USD 3.25 in FY24.Revenue has been growing rapidly in the past several years (strongly positive), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Moderate
The risk of default is moderate. We note strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to negligible return on capital, and poor working capital management.
Volatility: Meaningful
In normal market circumstances, AMD is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from large to substantial.
Stress-test: Average
In highly turbulent market conditions, AMD is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate.
Selling difficulty: Low
AMD boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.