Is AMD Stock a STEAL Right Now?

Summary

This video discusses AMD's market performance and prospects in comparison to Nvidia and Intel. Despite initial strong growth in 2024, AMD's stock has faced a 7% decline year-to-date. Analysts expect significant growth in AMD's earnings, particularly from its data center business, which has grown 550% since 2020. While Nvidia remains the industry leader, AMD is showing promise with its future products and supply chain improvements. The video also explores AMD's valuation using a reverse DCF analysis, suggesting that if it meets expectations, the stock may offer a viable investment opportunity despite competition from Nvidia.

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Q & A

Why has AMD's stock underperformed despite earlier gains?

AMD's stock has underperformed due to a significant decline of nearly 7% year-to-date, following a 43% increase at the start of the year. Despite being the so-called 'number two' in the semiconductor industry, AMD has struggled to maintain consistent growth, especially compared to Nvidia, which has outpaced it in free cash flow and profitability.

What is AMD’s current market cap and how does it compare to Intel and Nvidia?

AMD has a market cap of $22.7 billion, which is larger than Intel's but much smaller than Nvidia’s. While AMD holds a significant position in the market, it is still dwarfed by Nvidia in terms of both size and growth performance.

How does AMD’s valuation compare to its historical performance?

AMD’s current forward price-to-earnings (P/E) ratio is 30, which might seem high. However, when considering the company’s expected growth, especially in free cash flow, the valuation is justified. Analysts predict AMD's growth in the coming years, which should help improve its profitability and stock performance.

What segment of AMD’s business is driving its expected growth?

AMD’s data center business is the key driver of its expected growth, with revenues increasing by 550% since 2020. This highly profitable segment has helped AMD gain traction, even as its gaming and client segments have grown more modestly.

Why is AMD’s gaming segment underperforming?

AMD’s gaming segment has been underperforming, as there has been limited growth in the console market, with no major releases except for the PS5 Pro. This has contributed to slower growth in gaming revenues compared to other segments.

How does AMD’s performance compare to Nvidia in terms of free cash flow?

Nvidia is in a league of its own when it comes to free cash flow generation, with a gross profit margin of over 75%. While AMD is growing, it lags far behind Nvidia in terms of profitability, with AMD’s free cash flow growing at a slower pace.

What are AMD’s expectations for its data center GPU revenue in 2024?

AMD expects its data center GPU revenue to exceed $5 billion in 2024, up from $4.5 billion in July and $2 billion at the beginning of the year. This represents significant growth, although analysts may have been expecting even more.

How does AMD’s supply chain situation compare to Nvidia’s?

While Nvidia has secured 60% of TSMC's capacity for 2025, AMD is working to ensure its supply chain can meet growing demand. AMD’s CEO, Lisa Su, mentioned that they have successfully ramped up their supply chain in recent quarters, despite the tight supply environment.

What is the expected growth rate of AMD’s free cash flow over the next few years?

AMD’s free cash flow is expected to more than double in 2024, with growth continuing at a strong pace in 2025 and 2026. Analysts project an annual growth rate of around 28.6% to justify the company’s current price, but it may grow faster based on current expectations.

What key risk factors could impact AMD's growth trajectory?

Key risk factors include AMD’s ability to maintain strong growth rates in its data center business, as well as potential supply chain constraints or competition from Nvidia. Moreover, the gaming segment's weaker performance and overall market conditions could also impact AMD’s ability to sustain its growth.