It has been more than ten years since then AMD (NASDAQ: AMD) Spin off its semiconductor manufacturing department, now GlobalFoundries. In the abyss of the Great Depression, despite AMD’s long-term vision of refocusing on technology, chip design, and better return on investment, the deal is considered a necessary condition to help AMD survive. The latter proved to be correct.
Despite the bump ahead, AMD’s stock price has risen by more than 2,000% since the beginning of 2009. Intel (NASDAQ: INTC) with Nvidia (NASDAQ: NVDA)At least as far as market share is concerned-the former is on the CPU (General Purpose Computing Processor Unit) and the latter is on the GPU (for graphics and other special computing processes such as AI)-significant technological advances have been made, and Both larger peers can make money.
Is it a millionaire maker̵
At this point, AMD itself is a large chip company. Now its market value is 60 billion US dollars. Ten years ago, when its price was a few cents, it may be marked as a portfolio of millionaire manufacturer shares compared to today’s AMD dollars. But for chip losers, that was a different period.
Nevertheless, the chip industry is huge. Global spending on technology construction has reached hundreds of billions of dollars and is still in a growth mode. In addition, Intel and Nvidia are valued at US$250 billion and US$229 billion, respectively. Therefore, this smaller company has a lot of room for development.
Powerful forces are driving growth
However, AMD is not only achieving growth by getting scrapped from its larger peers. In fact, it can be said that AMD’s CPU lineup is superior. Although NVIDIA has charged high prices for its advanced GPU hardware for some reason, even NVIDIA has used some AMD products in its design (such as the DGX A100 data center unit using two AMD EPYC server processors) . In addition, although the next-generation gaming graphics card with ray tracing was launched by NVIDIA a few years ago, AMD’s own GPU with ray tracing will power the new graphics card Sony Playstation 5 and Microsoft Xbox Series X.
Even if cloud-based video game streaming takes off and kills the console (unlikely), AMD will not be left out here. Its chips are helping some data centers perform heavy cloud computing tasks. In short, although AMD’s revenue has soared in the past few years, the computing power of businesses and consumers is still in a huge upgrade cycle. AMD’s tanks may still have a lot left.
But is this a purchase now?
Of course, the problem with the semiconductor industry is that although it is technology, it is also manufacturing. Manufacturing companies are cyclical in nature. Managing this cycle and maintaining growth can be a difficult problem-even after divestment from its GlobalFoundries and focus on design, AMD has not been able to figure this out. Over the past two decades, although sales have generally increased, this has been a particularly crazy process.
Is it different this time? maybe. In addition to the highly cyclical business, I have also avoided AMD because it lacks profitability. In the past two decades, free cash flow (the basic profit added or subtracted from the balance sheet, calculated as income minus cash operations and capital expenditures) has often been negative. But in the past 12 months, its revenue has been positive $431 million. Revenue for the same period was $7.25 billion, which is good for a 6% free cash flow margin-not an alarming ratio, but a positive free cash flow is important. This means that chip companies are raising enough funds to reinvest in R&D, which helps them maintain innovation and in turn achieve sales growth over time.
AMD has also improved its balance sheet, paid off its debts (which fell to $488 million by the end of March 2020), and increased cash and equivalents on hand (up to $1.39 billion). Compared with a long time, AMD’s situation is better.
Is this semiconductor company a millionaire manufacturer? Given its size, it may not. Is it worth adding to the technology growth portfolio? Yes, although I chose NVIDIA, its innovation speed is high, its profit margin is high and its financial strength is abundant. However, if it is due to Intel or AMD, in the long run, I will choose AMD. Just look forward to this historically volatile and profitable chip coaster.