VALUATION HIGHLIGHTS

1. Computing and Graphics constitute 60% of the Trefis price estimate for AMD's stock.
2. Enterprise, Embedded and Semi-Custom constitutes 39% of the Trefis price estimate for AMD's stock.

WHAT HAS CHANGED?

Q4 2023 Earnings

AMD posted a better-than-expected set of Q4 results. While revenue grew by 10.7% year-over-year to $6.2 billion, earnings came in at $0.77 per share. Growth was driven by strong demand for AMD Instinct GPUs, 4th Gen AMD EPYC CPUs, and AMD Ryzen 7000 Series CPUs.

AMD is doubling down on AI-focused chips

Following the launch of OpenAI's surprisingly competent generative AI tool ChatGPT, major tech players are doubling down on the artificial intelligence space. This has turned attention back to companies that make graphics processing units which are becoming the de-facto chips for running AI-related workloads. AMD recently unveiled the MI300X chip which is targeted specifically at large language model training and inference for generative AI workloads. The company expects to begin offering the chips for customers to try in Q3 2023, with production slated to ramp up from 2024.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of AMD's value that present opportunities for upside or downside to the current Trefis price estimate for AMD:

• AMD's Computing & Graphics Revenue: We estimate that AMD's Computing and Graphics revenues will grow from around $12.6 billion in 2022 to over $25 billion by 2029. However, if the metric grows to over $30 billion, there could be a 10% upside to our price estimate.
• AMD Enterprise, Embedded & Semi-Custom Revenues: We estimate the Enterprise, Embedded & Semi-Custom revenue to increase from $10.75 billion in 2023 to over $21 billion by the end of our review period. However, there is a possibility that we are underestimating the gains from this segment, given AMD's expansion and deals with new clients, such as Cisco, and HP Enterprise. If AMD's Enterprise, Embedded & Semi-Custom revenues increase to $30 billion by the end of our review period, there will be a more than 15% upside in our valuation for the company.

For additional details, select a driver above or select a division from the interactive Trefis split for AMD at the top of the page.

BUSINESS SUMMARY

AMD manufactures and markets microprocessors used in servers, desktop PCs, and notebook PCs. Microprocessors are a PC's Central Processing Unit (CPU) or the "brain" behind the computer. A microprocessor is the single most important component that drives computer power and performance. Additionally, AMD manufactures Graphics Processor Units (GPUs), which are used in PCs to process information for graphics displays.

AMD also manufactures embedded processors used in products that require high-to-moderate levels of performance, where key features include low cost, mobility, low power, and small form factor. The company also makes System-on-Chip (SoC) products and technology for game consoles.

SOURCES OF VALUE

We believe that 'Enterprise, Embedded and Semi-Custom', and Computing & Graphics divisions are the two key segments within AMD for the following reasons:

New Growth Markets

In order to reduce its exposure to the declining traditional PC market, AMD intends to derive an increasing proportion of its revenue from high-growth markets, including semi-custom, ultra-low power clients, professional graphics, dense servers, and embedded solutions.

AMD believes that it is effectively positioned to drive the next revolution in gaming and now powers all major next-generation consoles including Nintendo Switch, Sony's PlayStation, and Microsoft's Xbox One.

AMD has introduced its future roadmap for the fast-growing embedded computing market. In addition to the new improved x86 processors, the company unveiled its first ARM-technology-based processor, extending its ambidextrous strategy to embedded markets. It is now the first company to offer its customers both ARM and x86 architecture-based solutions for low-power and high-performance embedded computing designs.

KEY TRENDS

Expansion Into The Server Market

AMD has been making solid progress in the server market with its EPYC Server Processors, which are finding favor with customers, due to their strong performance, scalability, and value pricing.

On-going Server Virtualization

Server virtualization is essentially server consolidation that enables the running of multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mixed shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single-core processors.

Convergence of Graphics & Processing

AMD and Intel have moved away from the idea of integrated graphics. The newer chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.

Mobile Processing

This remains a key area that is not yet reasonably explored by both Intel and AMD.

Growth in The Internet-of-Things (IoT) Market

IoT includes all other computing devices apart from PCs, tablets, and smartphones. IoT is still at a nascent stage, but it is expanding fast and is considered to be the next big growth driver in the semiconductor industry, after smartphones and tablets.