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AMD: Already Baked In


  • AMD is now priced for serious weakness in the chip business while the data continues to support strong growth.
  • The company remains supply constrained with Intel still forecasting chip challenges until 2024.
  • The stock trades at only 15.5x '23 EPS targets, providing plenty of cushion for unexpected weakness.
  • This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Learn More »

Sign of AMD at AMD "s headquarters in Silicon Valley.

JHVEPhoto/iStock Editorial via Getty Images

Advanced Micro Devices (NASDAQ:AMD) has fallen a massive amount this year that any major cut to financial targets is already baked into expectations. Amazingly, the chip company has faced a multi-year issue with supply

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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.

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Comments (147)

Stone Fox Capital profile picture
Nice green close today. Lots of signs the selloff is vastly over done, but doesn't mean that some mines don't exist.
@Stone Fox Capital your article is turning out to be a pretty accurate assessment of current AMD value.
Stone Fox Capital profile picture
Let's hope. So many signs exist that the market has hit levels only present during the last few market crashes 2000, 2008 and 2020, yet the US economy might not even fall into a recession.
what are your thoughts on Meteor Lake in 2023? do you see it as a big threat to AMD?
Stone Fox Capital profile picture
Define threat? $AMD still doesn't have equal market share to $INTC. Don't see any product being much of a "threat" until AMD has market share to lose. No company wants to go back to a 90%+ Intel dominated market, so even a better chip from Intel could still lead to more sales to AMD.
@3rd-Grade-Spelling It's hard to take any Intel roadmap seriously at this point. They haven't shown they can meet their timelines. Maybe if they can get a few products out the door when they said they would then that opinion would change... If meteor lake launches in 23 then It'll probably be competitive with Zen 4 or some kind of Zen 4-3d variant. As Stone Fox mentioned... I don't think anybody wants an intel dominated market again.

Intel has a lot working against them that even if they make better chips, they still may lose market share. I think their reputation has taken a big hit over the last several years and that will take a while to fix. The DIY market is the perfect example where you can see the dislike of INTC from the general DIYer. AMD has been outselling INTC for a while in this market.

I think there are a lot of medium and large organizations that are looking to refresh their employees laptops in the next 6-24 months and I believe AMD will grab a slice of that business. My organization for example is switching us all to AMD machines for this refresh cycle... Represents about 10,000 laptops in Canada.
What is not baked in AMD revenue/earnings potential is the new markets it can go in with its Xilinx merger. Networking, Defense, Auto, Airlines, Medical Industrial, AI , Strengthening of their semi-custom business, 5G and many more(AMD products will be in lot more industries now)

Its trading only at PE of 20. In its earlier days when their products were ramping AMD was trading at around 55. So 3 times the current price takes it to around $250. So somewhere next year , if macro market stabilizes AMD can reach that price easily.
tufttugger profile picture
@adaveinus2 Concur. Victor Peng, former Xilinx CEO, who was on the call, said it best: "Analyst: So maybe Victor can help us understand like what percentage of Xilinx FPGA solutions in the Embedded market sits next to either an x86 or high-performance ARM processor, because I think that the processor opportunity in Embedded is much larger than the FPGA opportunity and I believe that Embedded is a pretty small percentage of overall business for AMD, so pretty big opportunity, but wanted to get your views.

Victor Peng: Yeah. Maybe I will take this one. I agree with you actually. One of the things of the many things that’s really exciting since we joined AMD is we have done some customer visits and they are really excited about exactly that point.

We have a broader portfolio in processors and even in some areas in the GPUs is also of great interest. The Embedded business at AMD has been selling APUs and Embedded versions of both the Server, as well as the Client kind of products.

And now with the FPGAs and the adaptive SoCs we have, we really can give a much more complete solution. And so that is differently on the menu of things in terms of revenue synergies which we will discuss more at the Financial Analyst Day."
Stone Fox Capital profile picture
The auto opportunity is massive. $QCOM has an order book of $16B now and forecasts $3.5B in annual sales in a few years.
I'm not sure how often Victor will be on conference calls but I like the way he speaks. Would love for him to be on for at least the next few calls.
What's not baked in is that AMD just might own the gaming crown this year starting with the RX6950 as a prelude to the upcoming release of RDNA3.


Gaming GPU revenue is currently only 5% of AMD's total revenue so plenty of growth potential here. All the RDNA3 leaks point to AMD winning this year in performance and PPW. Ray tracing remains the big question mark even though it's drastically improved apparently. Leaks of Lovelace cranking 600W is looking desperate for Nvidia.

AMD's process development and optimization are really benefiting from their staggerred CPU / GPU / APU dev on new nodes. It's really bearing fruit as evident of AMD's steep PPW improvements. Same goes for chiplets architecture as it'll now allow AMD to lead in GPU production cost efficiencies also.

Let's hope they're not wafer constraint yet again.
tufttugger profile picture
@OU812EH? Nvidia is designing good chips, but they don't seem to have the design chops to keep up with AMDs ability to design efficiency. Same goes for Intel. I'm not sure how AMD does it... did they learn from their K12 work which was ARM based? Or just somebody over there is a guru and passed it from the Zen team to Radeon, and now everywhere? That efficiency lead, which drives AMDs wins everywhere, is the key to their success (plus chiplets).

So... you updated your projections with the new earnings info? [drools] You're EPS targets are extraordinarily canny. Though I bet they surprised even you. That was a huge beat.
@tufttugger Chiplets, being much smaller die sizes, do allow AMD rapid cost-efficient optimizations on new nodes.

GPUs usually go first on new nodes also as pipe cleaners due to their lower clock rate than CPUs. What's learnt there gets applied to CPUs and back again. AMD highlighted this in how Zen3 optimizations benefited from RDNA which than helped RDNA2 in return.

AMD definitely has an advantage in terms of process optimization compared to Nvidia and even Intel with its own fabs surprisingly.
@tufttugger Very minor changes with my updated projections. I did have Q1 EPS over $1 but AMD surprised us there with $1.12. It's partially thanks to the $0.06 bump from the $83m IP licensing that went straight to the bottom line. Just wish we know what that was for and if it's 1 time or ongoing. Samsung or Valve’s Steam Deck?

Because of that, Q2 EPS will likely match or be lower than Q1, unless we get another surprise IP licensing bump.

$5 EPS for 2022 is looking more certain now with a GM crossover with Intel happening in Q2. Almost did it in Q1 with 52.7% vs Intel's 53.1%.

AMD readjusted their own organic growth (excluding XLNX accretion) from 31% to 36% already with this ER matching the low end of my 60-75% YoY growth projection including XLNX. Expecting a few more readjustments to come, similar to last year.
fair value of AMD is around 55 dollars
@karondongotbanned but they're growing much faster?
khlim115 profile picture
Punish the winners mentality is creating some awesome ops. Did anyone hear what Dr. Su said about Xilinx ? According to her, gaming is still strong. A great time to add.
Stone Fox Capital profile picture
Yes, Dr. Su had the analysts apologizing for their crazy statements on the business plateauing. She is the best CEO.
tufttugger profile picture
@Stone Fox Capital That was a funny moment. I liked her levity. When combined with tone and how relaxed they seemed, confidence was just overflowing.
@Stone Fox Capital to yhe investors running AMD up 9% today- you need to remember that all their increasing CPUs require TONS more memory.. put some of your profits and extra cash in MU...another great American company making great earnings and FCF.
manpower profile picture
Performance is not already baked in.
Stone Fox Capital profile picture
These analysts are too much...those results were worthy of hiking PTs.

-Mizuho Securities analyst Vijay Rakesh, who rates AMD (AMD) buy, lowered the per-share price target to $145 from $160, noting that the company saw strength in its data center business, and noted that supply was better-than-expected, given the industry's constraints.

-SMBC Nikko Securities America analyst Srini Pajjuri lowered the price target to $100 from $125 on AMD (AMD), but noted that the company is benefiting from increased market share in servers, strong console demand and improved supply.

-Benchmark analyst Cody Acree lowered the firm's per-share price target to $125 from $145 due to a lower earnings multiple, but highlighted AMD's "across-the-board strength in demand and solid internal execution."
@Stone Fox Capital only 15.5x 2023 earnings? Isnt that way too low compared to the rate at which it is growing? 50-60% a year?
Even the EPS is increasing by 27% every year at least. So a fair multiple should be around 30-35, if not higher.
@Stone Fox Capital Looking forward to some maths on EPS predictions for the next few years given the strength of that Q1.

Are you still modeling for just under $5 EPS this year, or do you now need to revise upwards?
@Stone Fox Capital What's funny is Cody reduced the PT due to a lower earnings multiple. In my book, PT should be raised due to lower earnings multiple unless I missed it.
> The company remains supply constrained with Intel still forecasting chip challenges until 2024.AMD disagrees and said the exact oppersit in their earnings call today. They have chips ready to go for the september launch of Zen4 and RDNA3. Stop the FUD on AMD having supply issues, because other companies are fucking around with their supply.
Intel - Litrully have a broken fab process leading to around 20% defect rate.

Nvidia - Doing back ally deals and diverting chips to from paid customers to a higher paying customer. Nvidia are actuall bidding off lots even during delivery. If someone have bought X cards, and someone else offers to pay more, those cards get diverted to the new highest bidder.
Stone Fox Capital profile picture
Having certain chips ready to go isn't the same as not having supply constraints in other areas.
ErikInvest profile picture
All rating agency downgraded AMD to SELL. Then i have put all my money to buy AMD under 90$ . What a gift !
AMD earnings was super as I had envisaged. I have loaded up AMD on margin and now I ready for a ride above $150
Stone Fox Capital profile picture
Not sure margin is such a great idea, but buying $AMD down here is a great price!
@Stone Fox Capital some margin is warranted if this goes to 70s on a pure market panic sell off, come on now
@Stone Fox Capital ,
I am levered 2 times of my holdings. Its quite manageable as you can fund your margin interests through covered calls.
Danimalc profile picture
I went kind crazy the last few days buying AMD, NVDA, and MU lol. Don’t ask me why I did that but I did it anyway hope it’s going to pay off lol
Stone Fox Capital profile picture
good job... $AMD will pay off at these prices.
mike ekim profile picture
i shoulda read the story before earnings ...good call fox
Stone Fox Capital profile picture
big beat as expected... hiked '22 revenues ~$800M above consensus.

-Q1 Non-GAAP EPS of $1.13 beats by $0.20.
-Revenue of $5.9B (+71.2% Y/Y) beats by $330M.
-For the second quarter of 2022, AMD expects revenue to be approximately $6.5 billion vs. $6.36B consensus, plus or minus $200 million, an increase of approximately 69% year-over-year and approximately 10% quarter-over-quarter. The year-over-year increase is expected to be driven by the addition of Xilinx and higher server, semi-custom and client revenue. The quarter-over-quarter increase is expected to be primarily driven by Xilinx and higher server revenue. AMD expects non-GAAP gross margin to be approximately 54% in the second quarter of 2022.

-For the full year 2022, AMD now expects revenue to be approximately $26.3 billion vs. $25.45B consensus, an increase of approximately 60% over 2021, up from prior guidance of approximately 31%, driven by the addition of Xilinx and higher server and semi-custom revenue. AMD expects non-GAAP gross margin to be approximately 54% for 2022, up from prior guidance of approximately 51%.
Turk Malloy profile picture
@Stone Fox Capital Those May calls should pop tomorrow. I was going to buy anyway - but your article solidified my decision - gracious !
@Stone Fox Capital
Great call & courageous, posted this morning no less before this afternoon's earnings announcement!

To be exact, your words were: "My investment thesis remains ultra Bullish on the chip company..."

Long AMD & very encouraged after today's results and your bullish article.
PT Larry profile picture
Thanks for the article.
Henry Little profile picture
"in the early innings." Um, that would have been late '16 to '17. AMD is still far, far above fair value. I remain short.
tufttugger profile picture
@Henry Little How do you calculate "fair" value? What do you get?
Henry Little profile picture
@tufttugger The traditional method of calculating fair or intrinsic value is to discount future cashflows with an appropriate discount rate. Some quick, back of the napkin math indicates fair value for AMD around $35 a share, although the estimates in that calculation are conservative (I think AMD fair value is probably closer to $17 a share).

Before you ridicule that statement, I have been estimating NFLX (also short) fair value around $90 to $100 a share...the bulls thought I was nuts last year. Not so much this year.

"AMD: Advanced Micro Delusion"


intel is beating AMD
Stone Fox Capital profile picture
@Finding Your Retirement
Is that even real research? $INTC still has to use TSM.

-For example, I highlight a substantial risk of AMD losing its console business to the much cheaper Intel Foundry Services option, since cost is critical for consoles.
khlim115 profile picture
@Finding Your Retirement I am a AMD bull, but this market just seem to punish chip stocks no matter how good the ER. Despite nearly 50% haircut from the top, this stock will most likely sell off after the announcement. Most likely will add more if goes lower.
I Sherman profile picture
Ultra AMD bullish.
Robert Shriver Barnes profile picture
IIRC, when TSMC reported they sighted a semi slowdown, but saw continued strength in auto and HPC. HPC is amd's growth market. If you follow over on phronix, they're making allot of software releases related to their GPU compute stack. What I can't wait to see is what their hybrid product with Xilinx IP that's coming out in 2023 is. It would rock if it was rdna3 with an FPGA and SSD all on the card.
Stone Fox Capital profile picture
The Xilinx deal closed on 2/14, so this quarterly report should be the first major discussion of the combined entities.
Sighcopath profile picture
Very interesting that the EPS estimate is $0.90-$0.91 on $5.58 Billion. The whisper number is much less at $0.87 on revenue of $5.2 billion. If AMD beats consensus then it it could have a 15% to 20% share price increase. Been a really long time since I saw the whisper numbers below consensus for AMD!
Stone Fox Capital profile picture
The Xilinx deal closed on 2/14. The consensus estimates include the 45 days of Xilinx estimates while your whisper numbers only appear to include $AMD beating their stand alone guidance.

-For the first-quarter, AMD said it expects revenue to be between $4.9 billion and $5.1 billion, up roughly 45% year-over-year and 4% sequentially, with non-GAAP gross margins of 50.5%. For all of 2022, AMD expects sales to be $21.5 billion, a jump of 31% over 2021, with non-GAAP gross margins of approximately 51%.
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