Very long AMD analysis inside. Including 10-K’s and Q’s and graphs

by amdPCbro

ABSTRACT All, I will focus here on technical and fundamental analysis derived from AMD’s 10K’s and 10Q’s. The most recent 10K is not yet available since the year is not over. I will link my previous post about AMD which covers a good amount of the background here. Overall, I tried to make this as easy to read as possible without going into too much detail about things so you do not get bored.

old.reddit.com/r/wallstreetbets/comments/j2q2wp/if_you_arent_in_for_amd_youre_missing_out_on_free/

-One of the main critiques in that post is how AMD is limited by TSMC supply. It is true TSCM production is booked and they are competing with Intel. This is due to unprecedented demand for the new series they expect. So, if they kept production at old levels then I do not think this would have been such a critique. Since they already sent out record levels of inventory last quarter, I think this bodes well actually. 
-AMD’s GPU’s are not a big money maker for them so I should not have focused on it. They are not a huge money maker yet. If rumors are true, this will be a breakout product rivaling NVIDIA. 
-NVIDIA selling out and saying how they are going to have limited supply of new GPU’s is a good thing because it shows demand is high. I cannot state how bad of a take that is. I have yet to see articles confirming retailers (AIB’s) saying they received adequate amounts of GPU’s. This is because their supply chain is destroyed right now. When your only competitor is coming out with GPU’s that will potentially rival yours with no significant supply chain shortages, you’re in danger. 
-Why would I buy calls on a stock that’s already run up with a P/E of 160? Because it will run up more.  

10K/10Q ANALYSIS Alright let’s go over the company and how it is performing compared to previous years. I’ll give you a hint. It’s really good.

All data came from SEC EDGAR For all of the following information, if you have critiques or different ways you view this information please comment or PM me so I can hear what you have to say.

AMD returns

To give context, this graph contextualizes the returns of common stock comparing two indices compared to AMD. To summarize, in a 5-year period, AMD has outperformed the S&P 500 index by a factor of 10 and the Semiconductors Index by a factor of 7.3.

AMD fin.

AMD had its first profitable year in a series of years in 2018. The previous years were categorized by Lisa Su heavily investing in new products, trimming fat, and expanding previous profitable divisions.

In 2015, AMD had net loss of 660 million dollars. In 2016, 498 million loss. In 2017, 33 million loss. In 2018, 337 million income and 341 million income in 2019. At the same times, the net revenue increased for AMD from years 2015-2019 by a factor of 1.98x.

In 2015, earnings per share was $-.84. It stayed negative for two years after. Actually, this is not a bad thing in the short term. Companies that need clean up like AMD did in 2012 generally have negative earnings due to such heavy investment to revitalize the company. – In 2018 and 2019, earnings increased to .34 and .31 respectively.

It is important to note that in 2015, AMD implemented its restructuring plan that would cause much of the data below and above this

Why 2019 was such an important year 1: This year signified the launch of the 7nm products, 3rd gen Ryzen’s, Zen 2’s, new Threadripper’s, and new notebooks. 2: Introduction of the 2nd Gen AMD EPYC family of processors that reduced cost of ownership by 50%. 3: Net revenue increased from 6.5 billion to 6.7 billion a 4% increase while gross margin increased by 5%. Operating income increased by 180 million and Cash/cash and marketable securities increased to 1.5 billion. 4: Debt decreased by just under 1 billion dollars compared to 2018 due to large cash on hand and refinancing previous debts.

COMPONENTS OF REVENUE

AMD More

Computing and Graphics= desktop and notebook processors and chipsets, discrete and integrated graphics processing units (GPU’s), data center and professional GPU’s and development services.

Enterprise, Embedded, and Semi-Custom= primarily server and embedded processors, semi-custom System-on-Chip products, development services and technology for game consoles.

In 2019, Computing and Graphics (Hereby known as C&G) increased by over 14% due to increases in average selling price and 4% increase in shipments due to demand. These factors were driven by strong demand of Ryzen processors. A key takeaway here, a 14% increase due to product reception is absolutely massive. IN 2020, ENTIRE NEW SERIES OF CPU’S AND GPU’S ARE COMING WITH PROMISING LEAKS.

CURRENT 2020= For the 6 months ending June 27, 2020, net revenue was at 3.7 billion. Before release of the major products being announced this month. MAYBE you can start to see why I am writing this.

FINANCIAL CONDITION Having debt is actually a good thing. It allows businesses to finance cheaper than equity, debt can be deducted for taxes, and it prevents takeovers. Having too much to the point where you cannot pay back obligations is a bad thing. – AMD decreased 2019 debt by a billion dollars. You read that correct

Operating cash flow increased by 460 million. Investing cash flow slightly decreased by 21 million Financing activities increased by 15 million to 43 million.

Just something that I like that AMD does… – AMD hedges its exposure to foreign currency exchange rate risk by entering foreign currency forward contracts. Nothing huge here other than they have yearly losses for this to hedge their exposure.

When comparing their cash flows from previous years, it looks like a completely different company. Their Financial Condition is a company that can pay current debts with a high cash reserve, good amount of debt, foreign market security, and attainable obligations. I chose not to go over notes in Term Debt because I don’t think most people know how they work.
-But essentially, AMD has senior and convertible notes maturing in 2022 and 2026 totaling 1.3 billion.

For gross profit, it has increased from 1.78 billion in 2017 to 2.44 billion in 2018 and 2.87 billion in 2019. Their investment into Research and Development has stayed a large part of their cash flows at 1.5 billion in 2019.

LETS TALK 2020 AND WHY ITS GOING TO BE INSANE HERE ON OUT All of what is detailed below is from the most recent 10-Q for data available up until June 27, 2020.

More

We see a revenue increase for the Six Months Ended of almost a billion dollars. In turn, we see a proportional cost of sales increase of 400 million. Profit increased by 500 million as well when compared to the previous year. In a non-spectacular year for AMD compared to 2019 so far, the company is destroying its previous self.

-AMD announcements for new GPU’s and CPU’s are coming this month and I expect them to be released shortly after. I highly recommend you look through my previous post for a lot of technical terms about AMD how its systems work in the comments. -EPS for 2020 and 2019 Six Months Ended is .27 and .05 respectively. A .$22 change so far. -Net income is up from 51 million to 319 million. -Cash and Cash equivalents is upon from 1,466 billion to 1,775 billion when compared to December 2019.

SO LETS SUMMARIZE BEFORE WE CONTINUE

-AMD is a company that has wildly outperformed all indexes and most companies. I understand how one company should not be compared to indexes with lots of businesses, but for ease of understanding it is here. – In 2019 EPS, Revenue, and profit all went up and not in a slight way. -Highly anticipated products launches coming out later this year. -Massive decrease of debt obligations.

So far, I hope this has been relatively straight forward.

NOW LETS TALK ABOUT TRENDS AND NOVEMBER CONCERNS

AMD

On November 7th, 2016 right before the big day, AMD was trading at $6.69. A week after jumped to $8.71. At the end of December it was at $11.58. So the first major moment we are looking at really did not have a negative impact. Him winning helped AMD rise.

AMD 3/17

March 17th was when Former VP J0E won 3 states (Florida, Arizona, and Illinois in his primary battle). During this time, COVID was starting to take effect as well. We 3/16 to 3/18 we see a few percent drop after his win is confirmed. I do not think in any way was Former VP J0E’s win related to that. I think it was entirely COVID related and even when comparing AMD to other tech stocks, the drop is minimal at best for the same timeframe.

AMD Biden

August 17th is when Former VP J0E was confirmed the nominee in the race. AMD has virtually zero reaction to this.

So we have quickly looked at 3 major events relating to p01itics and seen how AMD has reacted. The only noticeable change was in March 2020 during COVID. It is clear to see how AMD is not influenced by major p01itical events, so I think its safe to say that the outcome of the race will not have a huge impact on the price. Unless the major indices have a massive jump or dip, AMD will not care. I looked at other major events like the first stimulus passing and it was more of a player there. On 3/27 when the Stimulus was signed when compared to a week after, AMD was down $2 when it was trading in the $40’s. However, AMD quickly recovered a short time later.

BUT AMD JUMPED RECENTLY BUYING IS NOT SMART

AMD surge

From 7/15 to EOD today, AMD went from $54.96 to $86.15. Quite the jump in just a few months. The all-time high was $94.28 a short while ago. Many people are looking at this and saying its too high and the jump was too soon. Actually, I would agree with them under normal circumstances. But right now tech carries the market and AMD has new product releases soon with massive hype, their deep learning and data centers will continue to take more market share, and their current financials are incredible compared to previous years. In no way do I think the price is too high or priced in yet.

Could we see pullbacks in the coming months? Absolutely and you should expect them. What are the chances the new products are a disaster? No clue, but if that’s your concern then play the hype surrounding the products and get out at the first sign of bad news. What do I believe the price target to be? Before 2020 is over, I would say anything around $95 is safe. Long term? $120 in 2021

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.