Advanced Micro Devices, Inc.

Advanced Micro Devices, Inc.

Headquarters at Santa Clara in 2020
Trade name	AMD
Type	Public
Traded as	Nasdaq: AMD Nasdaq-100 component S&P 100 component S&P 500 component
Industry	Semiconductors Artificial intelligence GPUs Graphics cards Consumer electronics Video games Computer hardware
Founded	1 May 1969 (1969-05-01)
Founder	Team led by Jerry Sanders
Headquarters	Santa Clara, California , United States
Area served	Worldwide
Key people	Lisa Su (Chair & CEO) Victor Peng (President) John Edward Caldwell (Lead Independent Director) Mark Papermaster (CTO)
Products	Central processing units graphics processing unit chipsets microprocessors systems-on-chip (SoCs) motherboard chipsets network interface controllers embedded processors solid-state drives drivers TV accessories
Revenue	US$23.60 billion (2022)
Operating income	US$1.26 billion (2022)
Net income	US$1.32 billion (2022)
Total assets	US$67.58 billion (2022)
Total equity	US$54.75 billion (2022)
Number of employees	c. 25,000 (2022)
Footnotes / references

Advanced Micro Devices, Inc. (AMD) is a global semiconductor company headquartered in Santa Clara, California. Established in 1969, AMD operates in two primary segments: Computing and Graphics, and Enterprise, Embedded, and Semi-Custom.

In the Computing and Graphics segment, AMD offers x86 microprocessors as accelerated processing units, chipsets, and both discrete and integrated GPUs. Their product brands in this segment include AMD Ryzen, Ryzen PRO, Ryzen Threadripper, Athlon, Athlon PRO, FX, A-Series, and PRO A-Series for personal computers. For graphics, they cover the AMD Radeon range for desktop and notebook PCs, complemented by the professional graphics brands Radeon Pro and FirePro.

The Enterprise, Embedded, and Semi-Custom segment provides server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, and technology for game consoles. Their server microprocessors are categorized under the AMD EPYC brand. Embedded solutions span brands such as Athlon, Geode, Ryzen, EPYC, R-Series, and G-Series. Moreover, the company offers Radeon Instinct, Radeon PRO V-series, and AMD Instinct accelerators for servers.

Serving a broad customer base, AMD caters to original equipment manufacturers, public cloud providers, system integrators, independent distributors, online retailers, and add-in-board manufacturers. The company employs a combination of direct sales, independent distributors, and sales representatives to reach its market.

Introduction

Advanced Micro Devices Incorporation, commonly abbreviated to AMD, is a semiconductor company focused on offering crucial computer hardware such as central processing units (CPU) and graphics processing unit (GPU), which AMD are well known for.

AMD is a multinational company which started off in America where AMD’s first few products were exclusively memory chips and other minor components used for building computers. Later on AMD expanded into the microprocessor market competing against the likes of Intel, even up to this day. Though they struggled at first, the experienced a monumental boom and are the semiconductor powerhouse that is known today with many common household appliances containing AMD components such as personal computers, laptops, gaming consoles as well as being in a majority of important settings such as servers, supercomputers, automotives and more.  

Initially, AMD produced its own processors all within its own factories for manufacturing but in 2009, AMD went fabless, a process in which they outsource their manufacturing to another company and now sources most of its chips from TSMC. This meant that AMD could repurpose and focus more on its staff on research and development, giving AMD a more competitive advantage in the rapid and developing semiconductor market against the likes of companies such as Intel or Nvidia.

Products

AMD operates within sectors of the technology industry with products and services based on semiconductors such as CPU, GPU, AI, Cloud computing, and software to complement its hardware.

Central Processing Unit (CPU):

AMD is one of the biggest and most dangerous competitors to Intel in the CPU market. Its rapidly growing marketshare is directly eating into Intel's dominance. In 2022, AMD's x86 CPU marketshare rose 6.9% to 34.6% and Intel's fell 6.9% to 65.4%

AMD developed the ‘Zen’ Architecture for CPUs, introducing a new era of ‘chiplet' architecture, making it easier to create CPUs with more cores while maintaining performance and efficiency, with their most extreme example being the EPYC 9754 processor, having 128 cores.

AMD offers a range of processors with processing powers suitable for various applications such as low power laptop chips, personal desktops, workstations, embedded systems, servers, and datacentres.

Their lineup of Ryzen 3, 5, 7 and 9 are built for gaming, rendering, design, and video editing. EPYC and Threadripper processors however, are purpose built for servers and datacenters, with much higher performance and bandwidth.

Graphics Processing Unit (GPU):

AMD possesses 15% of the market share in the first quarter of 2023, remaining NVIDIA’s biggest competitor. The company offers the GPUs under the AMD Radeon Graphics, best known for applications in gaming, content creation, graphic design, and CAD.

Some of the lineups include the Radeon RX 7000s cards, Radeon Pro W7000 series cards for rendering and workstations. Mobile versions of the GPUs have also been produced for use inside Laptops.

Accelerators:

AMD offers Data Processing Unit (DPU), GPU, and Adaptive Accelerators for datacenters and servers.

The acquisition of Pensando allows AMD to offer DPU processors under the same name. The AMD Instinct accelerators are GPU accelerators specialised in handling AI-accelerated processing and High-performance computing. The Alveo cards are a solution for high performance computing, video decoding, and machine learning. Alveo V70 is fitted with AI engines for video analytics and language processing applications. As the Adaptive accelerators are specialised for specific tasks, allowing for faster execution and lead to enhanced performance and efficiency, and reduced bottlenecking in systems.

Embedded systems:

Processors such as Ryzen Embedded 5000 series and EPYC Embedded Processors are used in applications such as Advanced Driver Assistance Systems (ADAS) and automated driving in the automotive industry, Electric vehical charging systems in industrial industry, Firewalls and switching and routing in Networking, and processing in enterprise and cloud storages.

System on Chip Products:

Semi-customisable SoC solutions are custom designed in collaboration with other companies for specific purposes. Famous examples are the Xbox and Playstation consoles, with SoC developed in partnership with Microsoft and Sony respectively. Use of AMD Radeon DNA (RDNA) 2 architecture within Samsung’s Exynos 2200 for smartphones have also been revealed. It possesses the AMD Infinity Cache technology, which adds a new larger L3 cache, and reduces latency and power consumption.

Sensitivity Analysis

This section explores the impact of variations in key assumptions on the valuation of AMD's stock. Specifically, we examine how changes in the Weighted Average Cost of Capital (WACC) and the projected long-term growth rate affect the company's estimated stock price.

The data below in USD('000) are derived from AMD financial report, Capital IQ and Alpha Spread.

WACC
Equity	54,750,000
Debt	2,956,000
Cost of Debt	2.98%
Tax Rate	37.50%
D/(D+E)	5.12%
After Tax Cost of Debt	1.86%
CAPM
Risk-Free Rate (10 year treasury yield)	4%
Expected Market Return (S&P 500)	10%
Market Risk Premium	6%
Beta (Yahoo Finance)	1.82
E/(D+E)	94.88%
Cost of Equity	14.92%
WACC	8.94%

Implied Price Valuation
Sum of PV of FCF	9,221,753
Growth Rate	3.00%
WACC	8.94%
Terminal Value	58,422,435
PV of TV	38,070,647
Enterprise Value	47,292,400
Cash	4,835,000
Debt	2,956,000
Equity Value	49,171,400
Outstanding Shares (K)	1,615,671
Implied Price (USD)	30.43

Note from the below data table that, the decrease in WACC and the increase in growth rate are favourable to the implied price. It highlights that the stock's valuation is sensitive to changes in these key parameters, and small variations in either the WACC or growth rate can have a significant impact on the final estimate. This sensitivity should be taken into account when making decisions based on this valuation.

Implied Price

		Growth Rate
		2.0%	2.5%	3.0%	3.5%	4.0%
WACC	7.94%	31.32	33.70	36.56	40.06	44.45
	8.44%	28.91	30.88	33.21	36.02	39.46
	8.94%	26.84	28.50	30.43	32.72	35.48
	9.44%	25.09	26.50	28.12	30.03	32.28
	9.94%	23.56	24.77	26.15	27.75	29.61

Relative Analysis

A relative valuation has been undertaken by using key metrics such as Price-to-Earnings Ratio (P/E Ratio) and Enterprise Value-to-EBITDA (EV/EBITDA) and comparing these across companies operating in the semiconductor sector.

Comparable Company Analysis

	Market Data							Financials			Valuation
Company	Ticker	Share Price	Shares Out	Enterprise Value	Net Income	Diluted EPS		Revenue	EBITDA		P/E Ratio	EV/EBITDA
Advanced Microdevices	NasdaqGS:AMD	$ 110.47	1,615.7	175,058.2	25.0	$ 0.02		21,876.0	3,100.0		5.523,5x	52.6x
NVIDIA Corporation	NAS:NVDA	$ 425.54	2,473.1	1,049,175.4	4,793.0	$ 1.92		25,878.0	6,090.0		221,63x	166.6x
INTEL Corporation	NasdaqGS:INTC	$ 34.28	4,188.0	170,512.6	922.0	$ 0.23		54,044.0	8,780.0		149,04x	17.9x
Broadcom Inc.	NasdaqGS:AVGO	$ 850.73	412.7	378,961.9	13,688.0	$ 31.99		35,042.0	20,287.0		26,59x	18.6x
Qualcomm Incorporated	NasdaqGS:QCOM	$ 116.57	1,116.0	136,905.1	8,615.0	$ 7.62		38,584.0	11,881.0		15,29x	11.3x
Micron Technology	NasdaqGS:MU	$ 66.70	1,095.3	75,641.6	2,911.0	$2.66		18,173.0	5,118.0		25,07x	14.4x

Company	Description
NVIDIA Corporation	Nvidia is a designer of discrete graphics processing. The firm's chips are used in a variety of end markets, including PC gaming and data centers. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm's products.
INTEL Corporation	The company designs, develops, manufactures, markets, and sells computing and related products worldwide. It offers platform products, such as central processing units and chipsets, and system-on-chip and multichip packages; and accelerators, boards and systems, connectivity products, and memory and storage products. It also provides high-performance compute solutions for targeted verticals and embedded applications for retail, industrial, and healthcare markets.
Broadcom Inc.	Broadcom Inc. designs, develops, and supplies various semiconductor devices. The company operates in two segments, Semiconductor Solutions and Infrastructure Software. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays.
Qualcomm Incorporated	It creates semiconductors, software, and services related to wireless technology and operates through three segments: Qualcomm CDMA Technologies (QCT), which develops and supplies integrated circuits and system software based on 3G/4G/5G  ; Qualcomm Technology Licensing (QTL), which grants licenses or provides rights to use portions of its intellectual property portfolio; and Qualcomm Strategic Initiatives (QSI), which invests in early-stage companies in various industries, including 5G, artificial intelligence, automotive, and extended reality.
Micron Technology	Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Embedded Business Unit, and Storage Business Unit.

Advanced Micro Devices plc Valuation	Value
Implied Enterprise Value	$89.67 billion
Implied Market Value	$89.695 billion
Shares Outstanding	1,615.7
Implied Value Per Share	$55.57
Average	58.3656
Current share price	$110.47
Difference	-49.77%

Risks

Economic and Strategic risks

Market uncertainty can impact the business and operating results  conditions can influence industry fluctuations detrimental to financial result, as the semi-conductor industry is highly recurrent cycle with severe downturns which may effect Advanced Microdevices in the future. The demand for the products heavily depend on the market conditions of the industries which they are sold.  Quarterly and seasonal sales patterns influence financial results, contributing to performance variations. Ensuring robust technology and intellectual property protection is vital, failure of which may undermine competitive advantage and lead to significant costs. Unfavourable currency exchange rate fluctuations introduce an added layer of uncertainty to the business outlook.

Operational and technology risks

The reliance on third-party manufacturers for product production presents a vulnerability if they are unable to do so on a timely basis, and the company may be adversely affected. This reliance exposes the company to potential disruptions or shortages that could significantly impact its operational continuity.

Another key consideration revolves around the company's strategic responsiveness to industry transitions and customer preferences. The ability to timely introduce products with competitive features, aligned with these shifts, is integral to the company's success. In particular, Advanced Microdevices holds a high  revenue dependence on semi-custom System-on-Chip (SoC) products, where successful integration into customers' offerings is pivotal.

The susceptibility to IT outages, data breaches, and cyber-attacks poses substantial risks to both the company's intellectual property and its core operational framework. Moreover, the ongoing transition to a new enterprise resource planning (ERP) system introduces an additional layer of potential challenges, which could potentially have material impacts on the company's overall operations.

In the realm of supply chain management, Advanced Microdevices faces the dual challenge of adapting to shifting customer demands while maintaining effective third-party partnerships for supply-chain logistics. Effective management is not only critical to the company's ongoing success but also offers significant opportunities for growth. However, this engagement also brings inherent risks that need to be diligently managed.

Legal and regulatory risks

Advanced Microdevices product exports could encounter issues in regard to government regulations, encompassing export rules and tariffs. Potential challenges may emerge if deferred tax assets cannot be fully realized, consequently influencing operational aspects. The volatility of tax liabilities, propelled by shifts in regulations, presents inherent risks. Involvement in litigation and the potential for claims might incur substantial costs and damages, thereby influencing product sales. Furthermore, adhering to environmental laws and the conflict minerals provisions within the Dodd-Frank Act could give rise to supplementary expenses and liabilities for the business.

Merger, Acquisition and Integration risks

Inadequately integrated acquisitions, joint ventures, and investments have the potential to disrupt operations and lead to negative impacts on stock prices. Moreover, there is a concern that impairment of assets of the combined company, including goodwill, might have an adverse effect on both the financial position and the overall results.