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AMD: Overvalued And Caught In The Storm

Mar. 08, 2021 12:32 PM ETAdvanced Micro Devices, Inc. (AMD)211 Comments
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True Orion


  • The company is currently overvalued based on its revenues, in our view.
  • Supply storm will evolve from blessing to curse for semiconductor manufacturers.
  • General economic climate sets the stage for some brutal price corrections.
  • We believe the company should be valued at $69.79 per share, although increased market exaggeration may push price lower.

There are two reasons why I generally like Advanced Micro Devices, Inc. (NASDAQ:AMD). The first one has to do with, when back in the day when I was a student, I managed to buy a brand new $250 graphics card with money earned from working as a waiter. If I recall well, it was an AMD Radeon HD7700 and introduced me in the fantastic world of Bethesda's Oblivion (gamers should know).

The second reason is because in general it is a fantastic company. It has staged an amazing turnaround over the past five years, more than doubling its revenues. The company has transcended from reporting losses in 2016 and 2017 to reporting EPS of 2.10, almost 6 times higher than that reported in 2019. The company has shown phenomenal growth in the worst of times.

The efforts of the company have not gone unnoticed and the stock price is a reflection of this fast-growing tech innovator. However, a more important question is if the stock price is too generous a reflection of the value of the firm. Currently, the stock is trading for roughly 10 times its annual revenue of 2020. Its market cap is $102 billion with 2020 sales of $9.7 billion. According to the annual accounts of the company it does not seek to pay any dividends in the near future. While the main reason to own AMD is momentum, this momentum seems to be running out.

The semiconductor industry has witnessed a surge in demand due to the COVID-19 induced lifestyle. With the effects now mostly under control, the work from home demand has started to fade. With auto demand rebounding in 2H 2020 and stockpiling by companies, the supply shortage is only worsening. The chip shortage that served to be favorable until Q4 2020 in face of growing profits due to

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True Orion is comprised of two notions. Orion, the ancient mythical hunter, and truth. The neverending pursuit for truth. This is my motto. I believe that knowledge is key to achieving oversized returns in a financial as well as in a personal level. As a private investor, with a real estate investment educational background and with more than 15 years of investing experience in the real estate and stock market, I can tell you that. Here in SA, I provide my readers with articles regarding specific stocks, or market analysis. My main focus is in REITs, shipping and value/growth smallcap stocks. Megacaps (usually) leave me tremendously indifferent. The purpose of my articles is to express my ideas and get them tested by reality, while at the same time gain additional knowledge throughout the process. As I said above, the notion of the neverending pursuit of truth is hidden behind True Orion. If you like my content, don't forget to follow me, like, share and comment. As a contributor affiliated with SA, signing up for the SA's premium annual subscription plan by clicking here, you are supporting my efforts even 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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