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AMD: Right On Target


  • AMD updated their long-term financial targets at Financial Analyst Day 2020 to levels supportive of higher stock prices.
  • The company guided to >20% revenue growth and 25% operating margins eliminating a long-held investor view of limited profits.
  • The conservative outlook is for 2023 revenues of $15.0 billion and 2024 revenues at $18.0 billion suggesting revenues doubling from 2020 levels.
  • My long-term model has an $18.75 billion revenue target (25% market share) and a $3.72 EPS.
  • This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

On March 5, Advanced Micro Devices (NASDAQ:AMD) held their Financial Analyst Day for 2020. Despite the DJIA dipping nearly 1,000 points on the day and the COVID-19 fears spreading around the globe, the management team stayed focused on the long term.

The chip company provided updates to their long-term financial models right on target with goals from previous research. My investment thesis remains very bullish on the stock not lasting below $50 for very long.

AMD logoImage Source: AMD website

Long-Term Model Updated

As my last article discussed, AMD established a long-term model back in 2017 of improving profitability due to higher margins. The company had gone through a decade of limited profits so the management team wanted to establish a goal for generating sizable profits by 2020. The investment community needed to understand that the goal wasn't for the chip company to just take market share from Intel (INTC). At the time, the ultimate goal was to achieve an EPS of $0.75.

AMD calls this their new long-term financial model, but CEO Lisa Su further defined this as a 2023 model. The key here is pushing the concept of 20% revenue growth over the period and operating margins reaching the 25% range for a substantial boost to their EPS.

Source: AMD Financial Analyst Day 2020 CEO presentation

My financial model has constantly harped on the benefits of higher margins as revenues grew. Previously, AMD had very low gross margins in the 30% range and the ultimate goal is set to top 50%, as all the new 7nm chips have margins above this target.

The only issue with gross margins reaching the mid-50% range or closer to 60% obtained by chip competitors Intel and Nvidia (NVDA) is the semi-custom work with console makers. Those chip deals have lower gross

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This article was written by

Stone Fox Capital profile picture

Stone Fox Capital (aka Mark Holder) is a CPA with degrees in Accounting and Finance. He is also Series 65 licensed and has 30 years of investing experience, including 10 years as a portfolio manager.

Mark leads the investing group Out Fox The Street where he shares stock picks and deep research to help readers uncover potential multibaggers while managing portfolio risk via diversification. Features include various model portfolios, stock picks with identifiable catalysts, daily updates, real-time alerts, and access to community chat and direct chat with Mark for questions. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (126)

Stone Fox Capital profile picture
Already back at $47 today.
Stone Fox Capital profile picture
Data center demand appears strong... big boost to $AMD.


- Meanwhile, demand for data center and network components is expected to steadily rise, despite the coronavirus pandemic. And while other chipmakers will reportedly focus on improving their manufacturing processes throughout the year, Samsung expects to cash in on its data center and network solutions.
IT Opinion profile picture
@Stone Fox Capital

Does this boost Intel as well?

If not, please explain why.
Stone Fox Capital profile picture
@IT Opinion
Of course it helps $INTC in the short term as well. Probably helps Intel more in the short run since $AMD has such small market share.
Stone Fox Capital profile picture
Trading above $40 again.... People keep trying to fight this stock, but $AMD is a clear winner when this insane panic is over.
stockroach profile picture
When do we see Last chance below $40 and are you going to start your article on last chance below $30?

There are no buyers out there for stocks right now. The market will keep going lower until we see the US numbers for the virus level off. Keep your cash handy and be ready to buy stocks in a few months
Stone Fox Capital profile picture
The lows in the market will occur before the US numbers levels off. Very possibly that Italy is the key.
Stone Fox Capital profile picture
$AMD is already above $41 today and the Naz is down nearly 8% right now. Do not fight the strength in this stock.
tufttugger profile picture
@Mike Bruzzone I listened to the MLiD podcast where Tom hosted you for more than an hour. www.youtube.com/...

It was great to finally get a good grasp on everything you've been discussing on these SA threads for years. You are clear and very informative in person. Thank you for that.

When you post to SA, please write like you talk, as if to a layperson rather than using your technical approach. You'll make your posts and points understood.
Stone Fox Capital profile picture
Initial trading is right at the lows of Feb 28... impressive with the market down substantially in this period.
thiseffengeye profile picture
And the final numbers?
Stone Fox Capital profile picture
$AMD is at $42. Do you not have access to stock quotes?
abdulmoiz1254 profile picture
@Stone Fox Capital

Imagine if your article was
AMD : Last chance to short below 50

Would've been a cool call
wow&wow profile picture
"AMD: Last Chance Below $50"
"AMD: Right On Target"

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

tufttugger profile picture
Wow, AMD fighting the continued market downturn... been like that since the market first turned. So hard to say how long it can do so, and/or when it will shoot back up.
Stone Fox Capital profile picture
It won't hold any further market dips, but will the market dip further? Testing the lows here. The WHO declaring a pandemic could be the bottom signal.
wow&wow profile picture

CHO, get it?

Having a person from a country that likely doesn't know what is a life and what is a life for run the organization, amazing!

People accept Intel's using partial addresses that allows computing orgy and keeps buying its CPU chips, amazing!

Intel doesn't explicitly disclose whether partial addresses are used in its new generation chips but people continue buying them, even more amazing!
Diesel profile picture
They have very little debt and if they are going to be as profitable as they say they will be, maybe it's time to start doing share buybacks.

It's time for them to buy Asus's chipset division (Asmedia) and stop getting screwd on waiting for B550 boards for the past year. Then buy Imagination's IP too.

Screw buybacks. That's the worst way to spend money.
Stone Fox Capital profile picture
They need a war chest to fight off $INTC over the long term. Save the money for a rainy day.
Stone Fox Capital profile picture

Buybacks aren't the worst use of money. Typically, the worse way to spend money is to overpay for another company.
give it 3-4 weeks and it'll drop 20% more. market is just starting to bleed. wait until the government has ground airplanes...
Diesel profile picture
<<< give it 3-4 weeks and it'll drop 20% more. >>>

At this rate it will take 3-4 days.
wow&wow profile picture
@Stone Fox Capital
To stop the spread of the virus from the 14B zoo!
This virus spreads out "without having the symptoms of being sick" or "without knowing already being carriers"!!!
Chris Lau profile picture
Having patted myself on the pat on predicting the $45 first before $60 (stock peaked at $59.27), I am cautious on this long position. But that's what the DIY value investing live chat is all about.
Cautious about what? A company that just reiterated guidance and forecasted 20% CAGR over next 5 years? Why such cold feet all of a sudden?
abdulmoiz1254 profile picture
A company that has no assets, no revenue relative to stock price and pennies in EPS
let's say 20% for next 5 years

or a total 7.3 dollar return on 45 investment in 5 years

give me 50 and I'll give you 20 back in 5 years and then make an excuse that my competitor crushed me and I am making a loss

with me 50 will make you lose 30 dollars

with AMD you will lose 43 dollars
Stone Fox Capital profile picture
Why bother with your own invalid model when this article has the 2024 EPS at $3.72? It's only helpful if you use this model (provided by the company) or outline what is wrong with it.
Sighcopath profile picture
Also watched the presentation both live and again recorded. Would have LOVED to hear an analyst grow a set and ask the real question for going forward which is "Will AMD, when the company starts with CRNA for the GPU, combine the EPYC server and CDNA numbers into a single divisional reporting segment for AI/ML/HPC/Server, and by 2023 or even 2025 how much of AMD revenue will be generated by the AI/ML/HPC/Server division seeing as how the two new exascale computers AMD is developing are using AMD CPU, GPU and interconnects? Now that is the question that really needed to be asked!

They mentioned a goal of 30% of revenue to be DC related by 2023 which works out to be ~$4.2b. It's currently at ~$1b for 2019.
Sighcopath profile picture
Yeah but by separating GPU from GPU AMD could start to play some nasty number games. One reason I love AMD is the clarity of the financials.
Stone Fox Capital profile picture
The goal is >30%. The greater than sign is a huge difference.
Let’s remind SA that some of us have trouble reading the small print on the new format of the comments and other programs, thanks.
Stone Fox Capital profile picture
SA isn't reading the comment stream. You probably need to lodge a complain with the Help & Support button in the upper right corner.
RandSec profile picture
Author: "The only issue with gross margins reaching the mid-50% range or closer to 60% obtained by chip competitors Intel and Nvidia (NVDA) is the semi-custom work with console makers. Those chip deals have lower gross margins, but similar operating margins due to less R&D spend for this business line."

In the AMD Semicustom business the customer pays for chip development and research as it occurs.  That implies almost zero AMD investment, in both dollars and time.  It also implies much less risk in the product market than is the norm for Standard Products.  

Normal projects do have higher "margins," but from those, massive development costs need be paid off from product sales.  Future marketing and support costs also need be deducted from Standard Product project margins, but not from Semicustom.  Semicustom projects may have smaller "margins," but whatever margin they do have is almost completely immediate profit.  

Semicustom really needs to be seen as a different form of semiconductor business, with different monetization.  The need for almost no up-front cash and a lack of normal market risks are obvious advantages.  But working with customers on design, seeing what is sufficiently important to pay dollars to include, may be an even greater advantage.  That would be a hidden and unpriced research benefit not available on normal projects.
Stone Fox Capital profile picture
Yes, this is why my comment was to steer people towards focusing on the operating margins going forward.
My model breaks out margin for semi-custom and the rest of the revenue streams for AMD.

Margin is 20% for the new consoles, was 17% for current/previous generation.

For AMD's margin to average out to the 50% target by 2023, the rest of its revenue streams (non-console) will need to hit 57%.
HippoLover85 profile picture
in my model console GMs of 30%ish tend to work out better.
Austin Craig profile picture
So good the author wont take a position.

(Golf clap)
Stone Fox Capital profile picture
@Austin Craig
Looks like the author has taken a very bullish position. What is your professional stance on the stock here?
Austin Craig profile picture
@Stone Fox Capital

I've mixed feeling on AMD so I'll break it down into time frames.
Short term this thing could easily .. very easily crack $50. So much positive energy and perma bulls are behind this.

At the same time, COVID is causing supply chain disruptions and quite a lot of fear in the market.

Long term I like AMD. I'm not sure if I agree w/ some of the long term projections of AMD about dominating the world and I think Nvidia is going to slap the hell of them when they jump to 7nm but still.. really good long term stock. Eventually Intel will gets its game together but still. I like em.

Disclosure: Long via $45 calls for June.
tufttugger profile picture
@Austin Craig One note, I'm pretty sure that AMDs NaviX2/RDNA2 is being released later because they are targeting having it compete with NVDAs unreleased 7nm products. Hopefully this time it will be a good fight.
abdulmoiz1254 profile picture
Right on target
Just not enough
Stone Fox Capital profile picture
If not, why has the stock held up? It took an 8% collapse in the market to get $AMD from topping $50.
Your applying the bull market logic to your numbers. What if $2.50 in earnings gets you a $25 stock? (assuming of course AMD hits it's numbers)
Stone Fox Capital profile picture
A stock with 20% growth doesn't trade at a 10 PE. In a bear market, maybe closer to 20 while a bull market would be up at 30+.
thiseffengeye profile picture
This is correct. Bear markets wont support such absurd valuations.
This probably isn't even a bear market, but rather a recession.
stockroach profile picture
@Stone Fox Capital - What happened to last chance below $50. Your numbers are fantasy.
"The company guided to >20% " Originally it was 28%-30%. AMD is doing the same thing as last year. Started at 9% guided down to 5%, came in at 3.6% revenue growth
Stone Fox Capital profile picture
Didn't say last day. smh. The point was the next days/weeks.
Just-Saying profile picture

Company guided to a 20% CAGR over next 5 years. 2019's $6.73byn at that rate puts the gross rev at $16.75byn out 5 years. Su said the CV would minimally impact Q1 numbers (a/o that date - 3/5). Su did not change her YE 28-30% projection.
Minus the CV (and now the OPEC squabble) stock should track back to the $59-60 range. Hopefully we've seen the near term low. Buy now for a potential 30% gain back to $59.
i see a low between $35 & $40 sometime in May, as the S&P bottoms between 2350 & 2400...THEN everything goes up in anticipation of Trump winning another 4 year term...
Author, I hope you make a promise to your readers if AMD comes nowhere close to your margin estimates in 2H 2020, you'll just stop writing this ridiculous crap. The outlook is even dimmer than it was before.
Stone Fox Capital profile picture
No, but we can agree that you want $AMD to fail for a reason. Do you work for Intel?
aragorn6 profile picture
I think @edsrouter is really Wiggo in disguise...
Yes, I do want it to fail for the reason that is over-hyped garbage. You contribute to that hype. My guess is you will disappear when it gets back to a P/E of 2 like it normally trades because semis are a completely cut throat industry.
My model showed similar number, if peg keep at 1.5 and down to 1.1 in 2024, PE could be 55 in 2020 and 27 in 2024. TP is $60 and $108 respetively.
How can you model price wars ??
Stone Fox Capital profile picture
A price war is rather difficult with $INTC having to cut prices substantially just to match the TCO of $AMD. Intel can't afford to keep cutting margins.
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