AMD: The chips company that is killing Intel and Nvidia
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
AMD: The chips company that is
killing Intel and Nvidia
____________________________________________
KeyTakeaway : Current Price (2021/8/15) 110 USD
Fair Price 83 USD – 95 USD
• Advanced Micro Devices, Inc. is a semiconductor company that 52 Week High/Low 72.50 / 122.49 USD
Number of Shares 1,210 M
develops computer processors and related technologies for
134.09 Billion
Market Cap__________________________________
business and consumer markets. The company operates in two
segments, Computing and Graphics; and Enterprise, Embedded
and Semi-Custom
• AMD announced its new lineup of Ryzen 5000 series processors
for desktops in November 2020, which are also the first chips
from the company to feature its next-generation Zen 3
architecture and represent the biggest jump for AMD's desktop
chips to date. AMD is also raising expectations, claiming that the
new Ryzen 5900X is "the world's best gaming CPU”
• AMD also claimed that its 3rd Gen AMD EPYC is the world highest
performing x86 Server CPU.
• I believe that semiconductor is an assets class that everybody S&P 500 AMD
should have in their portfolio. This is because semiconductor is
the based of all technology that we are currently using in the
digitized world. When you talk about basic electronic, advanced
electronic, fourth industrial revolution, data centre, SaaS , AR VR,
AI , autonomous driving and etc. .All of them need a
semiconductor to functions
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
Content
1. What is AMD business Model?.......………………………..……….….3
2. Growth Driver of AMD…….………….…………………………....……..10
a. Semiconductor the base of every new disruptive
tech …………………………………………………………………...10
b. Good Management Team ………………………..………….11
c. AMD competitive advantages ……………………………..13
3. Risk………………………………………………………………………………….15
a. Competitive and Cyclical Market …………………………15
b. Customer Concentration and Cryptocurrency Mining
Risk …………………………………………………………………….16
4. Right Number…………………………………………………………………..17
a. Income Statements……………………………………………..17
b. Balance Sheets…………………………………………………….18
c. Cash Flow Statements………………………………………….19
5. Valuation………………..……………………………………………………….20
6. Technical Analysis………………………………………………………….…21
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
1. What is AMD business Model?
Advanced Micro Devices, Inc. is a semiconductor company that develops computer processors and
related technologies for business and consumer markets. The company operates in two segments,
Computing and Graphics; and Enterprise, Embedded and Semi-Custom
Computing and Graphic Segments
Computing and Graphics market addresses the need for computational and visual data processing in
computing devices that include personal computers, laptops /notebooks, and workstations. AMD
provides their CPU, GPU, APU, system-on-chip and chipset product offerings to this market.
i. CPU ( Central Processing Unit )
It is a devices that knowns as the “ brain” of the computer. It a very small chip device
that process millions of data. The performance of a CPU is a critical factor impacting the
performance of computing and entertainment platforms
ii. GPU ( Graphics Processing Unit )
A GPU is a programmable logic chip that helps render images, animations and video. The
more sophisticated the GPU, the higher the resolution and the faster and smoother
moving objects can be displayed on a video display or in a virtual environment (e.g.
virtual reality (VR) and augmented reality (AR)).
In addition to graphics processing, GPUs are used to perform parallel operations on
multiple sets of data and are increasingly used to perform vector processing for non-
graphics applications that require repetitive computations such as high-performance
computing (HPC), deep learning, artificial and machine intelligence, blockchain and
various other applications (e.g., cryptocurrency mining and autonomous driving).
iii. APU ( Accelerated Processing Unit )
An APU is a processing unit that integrates a CPU and a GPU onto one chip. This
integration enhances system performance by “offloading” selected tasks to the best-
suited component (i.e. the CPU or the GPU) to optimize component use, increasing the
speed of data flow between the CPU and GPU through shared memory and allowing the
GPU to function as both a graphics engine and an application accelerator. Having the
CPU and GPU on the same chip also typically improves energy efficiency by, for example,
eliminating connections between discrete chips.
APU chips enable the computer devices to be thinner and lighter with better
performance and longer battery life.
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
iv. SOC ( System-on-Chip)
An SoC is a type of IC with a CPU, GPU and other components, such as a memory
controller and peripheral management, comprising a complete computing system on a
single chip. By combining all of these elements as an SoC, system performance and
energy efficiency are improved, similar to an APU.
v. Chipset
An electronic chipset manages the flow of data between components on a motherboard.
It's the traffic controller between the CPU, GPU, RAM, storage, and peripherals.
AMD Ryzen
Amd ryzen is a CPU and APU chips that designed for consumer and commercial notebook and
desktop PCs.
AMD announced its new lineup of Ryzen 5000 series processors for desktops in November 2020,
which are also the first chips from the company to feature its next-generation Zen 3 architecture and
represent the biggest jump for AMD's desktop chips to date. AMD is also raising expectations,
claiming that the new Ryzen 5900X is "the world's best gaming CPU."
Source : https://klgadgetguy.com/amd-ryzen-5000/
With the new lineup, AMD is taking a direct shot at Intel, particularly the company's Core i9-10900K
model, which Intel has previously claimed is "the world's fastest gaming processor." While AMD's
chips do not outperform Intel's 10th Gen chips in terms of clock speed but AMD does offer other
benefits, such as improved power efficiency and a higher core and thread count. If we look on the
performance benchmark, AMD Ryzen9 5900x managed to outperform Intel i9-10900k in most of the
game performance.
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
Source : https://klgadgetguy.com/amd-ryzen-5000/
In October 2020, AMD also confirmed that the Zen4 architecture is on track in design. This Ryzen
chip with Zen4 Architecture is estimated to be released in 2022. AMD confirmed that they will use
5nm chips in the Zen 4 Architecture rather than 7nm chips. This 5nm chip provided by TSMC is
expected to provide a significant performance boost in the future while Intel is still struggling with its
7nm chips . TSMC's 5nm chips are currently the fastest and most efficient on the market.
Source :
https://d1io3yog0oux5.cloudfront.net/_a1b35b0c2d1b56ad4b028627b0699c55/amd/db/708/637
4/pdf/AMD+Corporate+Presentation+7.21.pdf
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
AMD Radeon
AMD Radeon is a GPU designed for gaming on various types of devices.
Source : https://www.bestvideocompilation.com/amd-big-navi-the-radeon-rx-6000-series/
AMD has announced its new GPU lineup of Radeon RX6000 in March 2021. The new lineup used the
RDNA 2 architecture, including real-time, hardware-accelerated ray tracing and variable rate
shading. If we look on the highest performance GPU in AMD vs highest performance GPU in Nvidia
we can see that their benchmark are very close to each other and it hard to claimed which one
perform the best. AMD shows here that their RX 6900 XT out-performs the RTX 3090 in five of the 10
games tested.
.
Source : AMD Radeon RX 6000 series: Benchmarks claimed VS NVIDIA RTX - SlashGear
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
However, what makes AMD so much better than Nvidia RTX 3090 is the cost of the graphic card.
Many people in the gaming community have begun to switch from Nvidia and Intel fans to AMD
fans. AMD was able to come up with a CPU and GPU that was better, faster, and, most importantly,
cheaper than its competitors. If we look at the benchmark performance, the RTX3090 has almost
similar performance compared to the RX 6900XT by AMD, but when it comes to price, the AMD GPU
is $500 cheaper than the Nvidia GPU. The RX6900XT cost $999 while the Geforce RTX 3090 cost
$1399.
Source : NVIDIA GeForce RTX 3090, RTX 3080, RTX 3070 Custom Model Prices Unveiled
(wccftech.com)
AMD's new RDNA 3 architecture is also set to be released in 2022. After AMD defeated Intel in the
CPU market, I believe nvidia is currently in serious trouble.
Source :
https://d1io3yog0oux5.cloudfront.net/_a1b35b0c2d1b56ad4b028627b0699c55/amd/db/708/637
4/pdf/AMD+Corporate+Presentation+7.21.pdf
7
Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
AMD EPYC
AMD EPYC is a CPU chips designed for the data center use. AMD claimed that its 3rd Gen AMD EPYC
is the world highest performing x86 Server CPU.
AMD's most recent chip, EPYC 3rd Gen Milan, a 7nm chip in the data centre with Zen 3 architecture,
offers twice the data centre performance of an Intel Xeon chip. AMD claims to have the fastest CPU
chip in High Performance Computing (HPC), Cloud and Enterprise which is double the speed of intel
current CPU.
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
Source : 3rd Gen AMD EPYC Processors (d1io3yog0oux5.cloudfront.net)
AMD Instinct
AMD instinct is a GPU designed by AMD for the date center.
AMD CDNA GPU-based Instinct MI100 accelerator is claimed as the fastest HPC GPU in the world. In
terms of performance, the AMD Instinct MI100 was compared to the NVIDIA Ampere A100 GPU
accelerators. Comparing the numbers, the Instinct MI100 beats the NVIDIA Ampere A100 GPU in
FP64 and FP32 performance in HPC workloads. It also beat A100 GPU in FP32 in AI workload by huge
amount of margin. This shows that AMD are doing really not just in term of PC market but also in
data centre.
Source : instinct-mi100-brochure.pdf (amd.com)
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Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
2. Growth Driver of AMD
1# Semiconductor the base of every new disruptive tech
I think a semiconductor is an assets class that everybody should have in their portfolio.
Semiconductor is the based of all technology that we are currently using in the digitized world.
When you talk about basic electronic, advanced electronic, fourth industrial revolution, data centre,
SaaS , AR VR, AI , autonomous driving and etc. . All of them need a semiconductor to functions. As a
result, I believe semiconductor is a market that will continue to grow as the world moves toward
digitization of everything.
The global semiconductor market size is currently valued at $425.96 Billion in 2020. According to
analysis of Fortune Business Insight, the semiconductor industry is expected to growth from $452.25
billion in 2021 to $803.15 Billion in 2028 represents a CAGR of 8.6% in the 2021-2028 period. The
growth of this market is primary attributed to the world going more digitize, there is increase
consumption of consumer electronics device across the globe. AMD currently believe that they have
a large and growing market with Total Addressable Market of $79 Billion as of 2021.
Source :
https://d1io3yog0oux5.cloudfront.net/_a1b35b0c2d1b56ad4b028627b0699c55/amd/db/708/6446/
pdf/AMD+Investor+Presentation+-+August+2021.pdf
However, I believe the management is quiet conservative with their Total
Addressable market. According to Intel's FY2020 data-centric revenue,
the data centre already generates $37.8 billion in revenue. AMD claims
that its 3rd Generation AMD EPYC is the world's highest performing x86
Server CPU, with performance that is more than double that of Intel Data
Center CPU chips. AMD chips tecchnology is destroying its competitors
and leaving them far behind. I believe AMD will continue to eat into
Intel's market share and potentially multiple their data centre revenue at
least a factor of 3.
Source: Intel 10K
10Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
2# Good Management Team
I might be a little bit bias here as I’m a fan of Lisa Su. In opinion, I believe Lisa Su is one of the best
female CEOs I have ever seen in my life.
Before Lisa Su entered into the company as CEO, AMD stock was trading at around $3 per share.
People used to joke that Intel was keeping AMD alive so that the Justice Department would not
target Intel and force it to break up due to market monopoly. AMD is also suffering from bleeding in
cash, laden with debt, and may face potential bankruptcy during that time. However, since the entry
of Lisa Su as the company's CEO, the company finally found its way and Lisa Su successfully turned
around the company from a company that was on the brink of bankruptcy to a chip maker company
that has surpassed Intel in terms of its technology. The stock growth from a $3 stock when Lisa Su
entered into a giant $110 semiconductor stock brought a 3300% return to the investor in a 7 year
time frame.
When Lisa Su came into the company, the first thing she did was to fix the company's ugly balance
sheets. This is an important step in execution because it is difficult to stay in the semiconductor
warzone without good balance sheets because resources are limited and the competition is very
high. Following that, Lisa Su made some critical decisions for AMD in order to help the company turn
around. Instead of focusing on developing technology for mobile phones and IoT, which is a very
attractive market at the moment, Lisa Su decided that AMD should stay and focus on what they are
good at, which is the PC and data centre markets, because she believes this is the company's DNA.
The roadmap, the strategy, and the execution made by AMD since the entry of Lisa Su are fabulous. I
believe as long as Lisa Su remains the CEO of the company, the company will continue to do well in
the future.
You can watch the interview of Lisa Su and Jim Cramer in this video link : (48) Advanced Micro
Devices CEO: Leading Technology | Mad Money | CNBC - YouTube
According to Glassdoor ratings, Lisa Su has a 98 percent approval rate as a CEO, which is one of the
highest approval rates I've ever seen. This results shown that Lisa Su's exceptional capability as a
CEO
.
11Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
Source: Working at Apple | Glassdoor
In addition, when we look at the gamer community, it is actually very entertaining to watch the
comments section on YouTube. Every comment about Lisa Su is so positive, and I enjoy seeing how
people use AMD to troll Intel and Nvidia.
Source : Youtube Comments
I think the main reason why AMD able to win the hearts of many gamers, converting them from Intel
or Nvidia fanboys to AMD is because of the AMD's performance and pricing in its CPU and GPU.
When it comes performance, AMD is able to offer comparable to better performance than its
competitors and its come to prices AMD is always cheaper than its competitors. Without Lisa Su's
leadership, gamers may have to pay exorbitant CPU and GPU prices to have a nice spec to play their
games.
12Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
3# AMD competitive advantages
When it comes to the manufacturing of CPU chips, Intel and AMD take very different approaches.
Intel is a semiconductor company with its own manufacturing facility. They create and manufacture
their own CPU chips. Whereas AMD is a fabless company that only designs chips, it outsources
production to TSM to manufacture its chips. This allows AMD to focus more on chip design and
produce higher-quality chips than Intel. TSM is also the industry leader in fab factories. With the
technology that TSM has, they are expected to begin 5nm production this year and 4nm and 3nm
production in the following years. Meanwhile, Intel is delaying its 7nm chip production again until
2023 as they are facing some issues with the chip production. The failure of execution of Intel
provided AMD the opportunity to capture more market share from Intel.
英特爾 – Intel
台積電 - TSM
Source : Intel Ponte Vecchio GPU Will Be Made On TSMC's 6nm Process, CPUs Could Be Made On
TSMC 3nm As Well (wccftech.com)
Something to take note of is that Intel 7nm chips are equivalent to 5 nm chips produced by TSM in
terms of performance. However, when it comes to energy saving and efficiency, TSM chips perform
better than Intel.
When we talk about the market share of AMD vs Intel, we can see that AMD is starting to eat up the
market share of Intel. AMD's market share used to be in the low 20% and has now risen to 40%
while Intel's market share dropped to 60% as of Q2 2021. I believe that if AMD continues to execute
well, it will be able to surpass Intel in CPU market share in the coming years.
13Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
Source : PassMark CPU Benchmarks - AMD vs Intel Market Share
In terms of server CPU market share, AMD still has a lot of room to grow. If we look at the history of
server market share, AMD used to hold 20% of the market. This is due to the Opteron CPU that they
announced in 2003, which helped them gain such a large market share at the time. However, as Intel
CPUs in servers improved and AMD's execution failure , AMD began to lose market share in its data
centre. However, we can see that AMD's data centre trend is beginning to rise again in 2020. With
the advanced 3rd Gen AMD EPYC, I believe they will be able to regain their 2007 market share and
even surpass the peak in the future.
Source : PassMark CPU Benchmarks - AMD vs Intel Market Share
.
14Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
3. Risk
1# Competitive and Cyclical Market
I would say semiconductor is a very competitive market and the company need to have a good
leaderships and have the ability to continue innovate to stay in the games. Many companies are
competing with each other for customers to establish dominance in some high growth areas such as
Autononomous Driving, 5G , AI , AR and VR. Thus most of them does not have much pricing power. If
AMD fail to or are delayed in developing, qualifying or shipping new products or technologies that
provide value to its customers then this may cause them to lose market share in the key area.
Key Competitors :
Besides semiconductor is also a highly cyclical industry and has experienced significant downturns,
often in conjunction with constant and rapid technological change, wide fluctuations in supply and
demand, continuous new product introductions, price erosion and declines in general economic
conditions.
Source : Goldman Sachs sees a correction coming for chipmakers (cnbc.com)
One example is when the cryptocurrency bubble burst in 2018, and many miners sold their GPU to
recoup some of their losses. As a result, the market is flooded with a large supply of GPUs. This
harmed AMD's earnings at the time and caused a drop in stock prices.
15Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
2# Customer Concentration and Cryptocurrency Mining Risk
Besides, AMD also depends on a small number of customers for a substantial portion of its business.
In the annual report, AMD expects that the small number of customers will continue to account for a
significant part of its revenue in the future. If one of these customers decided to stop buying its
products, it would have an impact on the company's revenue and result in a drop in stock price.
However, we can see that AMD is making an effort to reduce its customer concentration risk. Now
both its top 2 customers account for less than 10% of the company's current revenue. If I am not
mistaken, one of the customers is Microsoft.
Source : 10K 2020
Company also mentioned that the GPU market has at times seen elevated demand due to the
application of GPU products to cryptocurrency mining. The demand for GPU will be volatile and
fluctuate based on the cryptocurrency demand. For example, the recent crackdown of on
cryptocurrency trading and cryptocurrency mining will results in reduce GPU demands in the market.
The drop in the valuations of the cryptocurrency is also corresponding to the interest in mining as
well.
16Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
4. Right Numbers
4a. Income Statements
Source : VI Apps.
AMD has returned to growth mode under Lisa Su's leadership. Over the last five years, the
company's revenue has a very healthy grow rates with a CAGR of 19.59 %. In addition, the company
became profitable in 2018 and has increased its net income to $2,490 million by 2020.
When we look at the company's gross profit margin, we can see that it has been steadily increasing
since 2016, rising from 23% in 2016 to 44% in 2020. This demonstrates that the company is
becoming increasingly efficient as it is able to use fewer resources to generate more revenue. In
addition, the company's net profit margin also increased from 3% in 2018 to 8% in 2020.
The company's ROE in 2020 is 19%, which is higher than the standard average of 14 %. This high ROE
shows that management used shareholder equity effectively to generate a very excellent return
back to its shareholders.
On a scale of 1 to 10 I will rate the company Income Statements as 10. It a very excellent Income
Statements with revenue , income, profit margin and net profit margin growing. The ROE is also
above average.
17Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
4b. Balance Sheets
Source : VI Apps.
As of Q2 2021, the company has a current ratio of 2.7 , a cash ratio of 1.31 and debt-to-equity ratio
of 0.093. The company is currently sitting on a net cash position with $3,793 Million Cash that able
to cover the $657 debt. AMD's balance sheet is very strong, and I don't see any issues with short-
term liquidity or cash burn activities in order for the company to continue executing its strategy.
On a scale of 1 to 10 I will give a score of 9 for this balance sheet.
18Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
4c. Cash Flow Statements
Source : VI Apps.
The company, which previously had negative cash flow statements, has now turned positive in 2019,
with free cash flow flowing into the company. Their cash flow statements are now in good shape,
with a consistent increase in Free Cash Flow over the last two years. I believe the company's free
cash flow will continue to grow in the future.
On a scale of 1 to 10, I give the company's Cash Flow Statements a score of 8.
19Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
5.Valuation
I will be valuing the company using a Discount PE Ratio. DCF is not used because to avoid estimated
mistakes as the company Free Cash Flow number is still not stable with the net profit ratio .
In the Base Case Scenario, assuming a PE ratio of 35 for the company in 2023, the target price in
2023 will be $126. By applying a 15% discount rate, the company is valued at $83 .
In the Best Case Scenario, assuming a PE ratio of 40 for the company in 2023, the target price in
2023 will be $145. By applying a 15% discount rate, the company is valued at $95 .
20Advanced Micro Devices Analysis
ADVANCED MICRO DEVICES AMD.____________________________________
6.Technical Analysis
Weekly Chart
Support Point - $96 , $86, $75
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